Question

2. The September 30 physical inventory of a hospital properly included $13,000 of supplies that were not recorded as pur- chases until October. What effect will this error have on Septem- ber 30 assets, liabilities, net assets (fund balance), and excess of revenues over expenses for the year then ended, respectively?

   1. a. No effect; overstate; understate; understate.

   2. b. No effect; understate; understate; overstate.

   3. c. Understate; no effect; overstate; overstate.

   4. d. No effect; understate; overstate; overstate.

Answer 1

Answer: Option d) No effect, understate, overstate, overstate.

Explanation:

If the physical inventory purchased and not recorded in the books the effect on stock holder's equity fund. It results to show the understate of equity then the liabalities understated.

The purchase of supplies not recorded is not affect the assets but effect the overall net assets to overstate the net assets balance.

When the purchase made we recorded as the expense for the company, If does not recorded the revenues shows over the expenses it results overstate of revenues.

Thus, option d) is correct and remaining options are incorrect.