Question

What is the procurement process?

A. A process in which a significant decline in payables as a percent of total assets may indicate completeness problems.

B. A process in which a significant increase in the current ratio compared to prior years' experience may indicate completeness problems.

C. A process that involves selecting vendors, establishing payment terms, negotiating contracts, purchasing goods, receiving goods, and recording of purchases and payment of liabilities.

D. The purchase returns process involving return of goods.

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If ending inventory is overstated, ________.

A. beginning inventory will be correctly valued

B. cost of goods sold will be understated

C. cost of goods sold will be overstated

D. the value of purchases will be understated

Answer 1

1. Option (C) is correct

Procurement process is a process that involves selcting vendors, establishing payment terms, negotiating contracts, purchasing goods, receiving goods and recording of purchases and payment of liabilities.

2. Option (B) is correct

When ending inventory is overstated, cost of goods sold will be understated. We have the below equation for cost of goods sold :

Cost of goods sold = Beginning inventory + Purchases - Ending invemtory

In the above equation, when we have ending inventory overstated, then cost of goods sold will be less and understated.