question archive An auditor is reviewing sales cutoff as of March 31, 2019
An auditor is reviewing sales cutoff as of March 31, 2019
Subject:AccountingPrice:3.87 Bought7
An auditor is reviewing sales cutoff as of March 31, 2019. All sales are shipped FOB destination and the company records sales three days after shipment. The auditor notes the following transactions:
Date Shipped Month Recorded Selling Price (OOO's) Cost (OOO's)
March 28 March $ 192 $ 200
March 29 March 44 40
March 31 April 81 77
April 2 March 220 208
April 5 April 92 84
If the entity records the required adjustments, the net effect on income (in thousands of dollars) for the period ended March 31, 2019 is
Multiple Choice
1. an increase of 12.
2. an increase of 8.
3. a decrease of 12.
4. a decrease of 8.
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Answer :
Option (2) an increase of 8
Explanation :
The company records sales 3 days after shipment.
Hence,
Sales which are shipped on March 29 should be recorded in April but erroneously it is recorded in March, which resulted in profit of $4 [$44 - $40]
And sales which are shipped on April 2 should be recorded in April month but erroneously it is recorded in March month which resulted in the loss of $12 [$220 - 208]
??????These two errors resulted in loss of $8 or decrease of profit by $8 & hence, for rectifying above errors,
the net effect on income should be increase by $8
NOTE: ALL FIGURES ARE IN THOUSANDS
