audit question

  • Creator
    Topic
  • #159727
    nolifecpa
    Participant

    Q: Inventory turnover decreased substantially from the prior year

    A: Items shipped FOB shipping point during December Y2 were included in Y3 sales

    explanation: Neglecting to record Y2 sales results in an understatement of COGS and an overstatement of inventory

    i kinda get how COGS would be understated because your taking COGS that should be recorded in Y2 into Y3 but have no clue why inventory is overstated

    can someone explain?

    REG-65,71,74,73,70,74,79
    BEC-60's,60's,69,71,76*,78
    FAR-67,66,65,79
    AUD-54,60's,65,83*,69,80
    *expired

    DONE

Viewing 2 replies - 1 through 2 (of 2 total)
  • Author
    Replies
  • #269385
    Anonymous
    Inactive

    Inventory would be overstated in Year 2 because it was actually sold in Year 2, so it should be removed from the books in year 2, thus reducing inventory. However if the transaction was recorded in Year 3 the sale didn't reduce inventory until Year 3, then inventory Year 2 is overstated. Does that make sense? I'm not sure I'm explaining it clearly.

    #269386
    nolifecpa
    Participant

    Oh, so you're saying Y2 inventory has to be removed in Y2 statements but since it's removed in Y3 statements, Y2 statements are overstated?

    Makes sense, got it!

    Thx

    REG-65,71,74,73,70,74,79
    BEC-60's,60's,69,71,76*,78
    FAR-67,66,65,79
    AUD-54,60's,65,83*,69,80
    *expired

    DONE

Viewing 2 replies - 1 through 2 (of 2 total)
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