Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate control activities over the invoicing function allow goods to be shipped that are not invoiced. The inadequate control activities could cause an:
A)understatement of revenues, receivables, and inventory.
B)overstatement of revenues and receivables and an understatement of inventory.
C)understatement of revenues and receivables and an overstatement of inventory.
D)overstatement of revenues, receivables, and inventory.

Question

Quizplus · Accepted Answer

The inadequate control activities allow goods to be shipped without being invoiced, leading to an understatement of revenues and receivables. Since the goods are not being invoiced, they are not being recognized as part of the inventory, resulting in an overstatement of inventory. Therefore, option C is the correct answer.

Alpha Company Uses Its Sales Invoices for Posting Perpetual Inventory