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Financial Accounting

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Effect of Error under Periodic Inventory System

FINACT-MNXGCF

Your new accountant did not know how to calculate cost of goods sold under the periodic inventory system. Instead of using beginning inventory plus purchases minus ending inventory when calculating cost of goods sold, the accountant used beginning inventory plus purchases minus sales. Assume that sales revenue was larger than the ending inventory. What was the impact of this error on the Income statement?

A

Cost of Goods Sold is overstated

B

Gross Profit is overstated

C

Sales Revenue is overstated

D

Net Income is not affected