If a Company Mistakenly Counts Less Items During a Physical

question 47

Multiple Choice

If a company mistakenly counts less items during a physical inventory than actually exist, how will the error affect the cost of merchandise sold?

• A) Understated
• B) Overstated
• C) No change.
• D) Only inventory is affected.

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Definitions:

Asset

An economic resource owned or controlled by an individual or business, expected to provide future benefits.

Liability

Any financial debt or obligation that a company owes, which must be settled over time through the transfer of economic benefits including money, goods, or services.

Owner's Equity

The residual interest in the assets of a business after deducting liabilities, representing the ownership interest of shareholders in a company.

Balance Sheet

A financial statement that presents a company’s financial position, showing assets, liabilities, and equity at a specific point in time.