If a company uses the periodic inventory system, what is the impact on the current ratio of including goods in transit F.o.b. shipping point in purchases, but not ending inventory?
A) Overstate the current ratio.
B) Understate the current ratio.
C) No effect on the current ratio.
D) Not sufficient information to determine effect on the current ratio.

Question

Quizplus · Accepted Answer

Under the periodic inventory system, goods in transit F.o.b. shipping point would be included in purchases but not in ending inventory. Since purchases would be overstated and ending inventory would be understated, the current ratio would be understated.

If a Company Uses the Periodic Inventory System, What Is