[startupcfo]

For several years a client’s physical inventory count has been lower than what was shown on the books at the time of the count so that downward adjustments to the inventory account were required. Contributing to the inventory problem could be conditions in internal control that led to the failure to record some

Cash purchases. This answer is incorrect because the failure to record cash purchases will result in a higher count than the amount recorded on the books.

If someone walks into my lot and gives me cash for inventory, and I forget to record the sale in my books, doesn’t that mean i’m constantly having LOWER inventory count than what I have in my books?

BEC - 87 | 02/28
REG - 70 | 06/10, REMATCH | 08/30
AUD - XX | 09/10
FAR - XX | 12/10

[slackergurl]

I think they mean that you are purchasing your inventory for cash and not recording your purchases in the inventory ledger. This causes your book inventory to be lower than your physical inventory.

[GoCPAGo1985]

^ Correct

they are referring to the purchase of new inventory (Dr. Inventory/Cr. Cash (or AP)

In all likelihood, what could result in having an overstated inventory would be failure to record sales of inventory to customers, impairment (LCM), obsolescence, shrinkage, etc.

[Biff-1955-Tannen]

“I think they mean that you are purchasing your inventory for cash and not recording your purchases in the inventory ledger. This causes your book inventory to be lower than your physical inventory.”

That would be correct, but the question has it the other way around. The question states that the physical count is lower than the recorded amount.

The last part of the questions given explanation is a direct contradiction of the first sentence in the question.

This is just another poorly written question that doesn't match it's answer.

AUD 93 Jan 16
BEC 83 Feb 16
FAR 83 Apr 16
REG 84 May 16

99% Ninja MCQ only

[T Rev]

This isn't a poorly written question. It was just misinterpreted by OP. Had they stated “cash sales” instead of “cash purchases”, OP's thinking would be correct.

[StudyNowCPA]

@startupcfo – You are confusing cash purchases with cash sales. Failure to record cash purchases would result in a higher inventory count than what is on the books.
That being said, your logic of not recording cash sales is correct. That would mean inventory would be lower than what is on the books.

[Biff-1955-Tannen]

The OP did misinterpret the question, but is the explanation not a contradiction of the question?
“a client’s physical inventory count has been lower than what was shown on the books” – Question
” will result in a higher count than the amount recorded on the books.” – Explanation

AUD 93 Jan 16
BEC 83 Feb 16
FAR 83 Apr 16
REG 84 May 16

99% Ninja MCQ only

[ScarletKnightCPA]

@Biff-1955-Tannen

No, it's not a contradiction.

I'll permit you to re-read the OP and tell me why it's not a contradiction.

Far: 76 (Wiley Test Bank)
Aud: 77 (Wiley Test Bank)
Reg: 61, 76 (Wiley book, Wiley Test Bank)
Bec: 86 (Wiley Test Bank)

MBA in progress

[Missy]

Well the explanation is why the answer is wrong so I'd expect it to contradict the question.

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[Biff-1955-Tannen]

“This answer is incorrect”

I can't read, give me a break. Thought this said this answer is correct.

AUD 93 Jan 16
BEC 83 Feb 16
FAR 83 Apr 16
REG 84 May 16

99% Ninja MCQ only

[Skynet]

This usually happens when you wife or girlfriend make purchases using your debit or credit card and hides it from you.

You then have a major argument with your bank or credit card company about these charges you think are fraudulent until they show you a security footage of your wife or girlfriend making the purchases.

A major fight ensues between your wife or girlfriend at home. Your clothes get tossed out the window and you still don't know what happened to all the items she purchased on your card.

[Author]

Replies