[narrski]

Wiley Question –

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

A. Purchases returned to vendors.

B. Sales returns received.

C. Sales discounts allowed.

D. Cash purchases.

Correct answer is A, but why doesn’t D work as well?

Seems to me if cash purchases are not recorded, the following journal entries would be omitted.

Cash xx

Sales Rev xx

COGS xx

Inventory xx

Thanks

[Herbieherb]

That's cash purchases…not cash sales. Co purchases 100 widgets for resale, fails to record…auditor counts = 100 extra widgets. If cash purchase not recorded physical inventory would be higher than book. 🙂

NEW YORK- DONE

[rknight21]

this is a common question… i see where u r coming from but the idea is if its cash sales or purchases it will almost certainly be recorded… and the answer would be cash sales before it would be cash purchase since unrecorded cash sales reduces inventory…. remember they are talking about inventory going GO which reduces inventory…

the only two possible answers is

unrecorded cash sales (possible missappropriation of assets)and

unrecorded purchases returned

[rknight21]

ok from a second look at your JE i can see that you definately confused cash purchases with cash sales since a debit to cash and a credit to sales rev. is for cash sales

[Author]

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