Question

$6,000 for 12 months of rent received from one of the tenants on October 1. 33. Alpha recorded a cash purchase of inventory (using the periodic inventory system) but erroneously recorded it as a debit to Supplies and a credit to Accounts Payable. The inventory was counted in ending inventory

Please show what journal entries you would use and how assets, liabilities and net income are effected (understated, overstated, no effect). How is inventory taken into account?

Answer 1

cash purchase is recorded as supplies. by crediting accounts payable. * Both Supplies and purchases are Expenses only. But purchase is a direct expenditure and supplies ps a Indirect expenditure. * * Due to this error Gross profit will be under over stated. since it is a cash purchare, accounts payable should not come due to this liabilities are overstated and assets are also overstated of - * XXX Net Income will be correct because both are oxpenditures only. No effect on Net Income Entry to Rectify is Debit Credit Accounts payable Purchases XXX cash XXX supplies XXX Inventory was taken into account, this because of physical count. We have made purchases and the goods will be included her at the time of physical count.