Homework Answers
Answer -
Q.1 Answer -
Expense
The cost of goods sold is the largest expense that a business incurs. The cost of goods sold is the aggregate amount of expenses incurred to create products or services that have been sold. The cost of goods sold appears in the income statement.
Q.2 Answer -
The total assets and total stockholders equity will be understated
The journal entries :
| Accounts receivable | $890 | |
| Sales | $890 | |
| (Being the credit sales is made) |
| Cost of goods sold | $560 | |
| Inventory | $560 | |
| (Being the inventory is sold at cost recorded) |
Gross profit = $890 - $560 = $330
The $330 (gross profit) reflect the understatement of total assets (Accounts receivable - Inventory) and the understatement of total profit or equity (Sales - Cost of goods sold).
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