A purchase on credit is recorded twice and not corrected during the physical inventory.Which of the following statements correctly describes the impact of this error?

A) The current year income on the income statement is correct because purchases are overstated and ending inventory is overstated.
B) The current year balance sheet ending inventory and accounts payable are understated.
C) The succeeding year income on the income statement is incorrect because beginning inventory is understated.
D) The succeeding year purchases are understated when the prior year purchases are corrected.

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Fahim Kanji · Accepted Answer

Final Answer : A, Explanation :  Recording a purchase on credit twice without correction means both purchases and ending inventory are overstated. This error does not affect the income statement's current year income because the overstatement in purchases (an expense) is offset by an equal overstatement in ending inventory (an asset), which is part of the cost of goods sold calculation.

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