Question

On Saturday, June 30, BD Pool Supplies sold merchandise to E. Luang on account. The sales price was $4,700, and the cost of goods sold was $4,000. The sales revenue was recorded immediately, but the entry recording the cost of goods sold was dated Monday, July 2. As a result, net income for June was:

Answer 1

The net income for June was a. Overstated by $4,700.

 

In line with the accrual concept and the matching principle of generally accepted accounting principles, the revenue and the cost of goods sold should be recorded on June 30. If only the sales revenue is recorded without the cost of goods sold, the net income for June is overstated by the amount of the sales.

 

Thus, the net income for June was not overstated by $4,000 or $700. The net income was affected by the overstatement for $4,700 because the cost of goods sold was not matched with the sales revenue.

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