Question 6.4 (Total: 20 marks; 1 mark each)

In each of the spaces provided, show the effect of the described errors on the various elements of a company's financial statements. Use the following codes:

O = amount is overstated;

U = amount is understated;

NE = no effect.

Assume a periodic inventory system and that all sales and purchases are on credit.

	Accounts Receivable	Inventory	Accounts Payable	Sales	Cost of Goods Sold
EXAMPLE: Goods in rented warehouse were excluded from inventory count.	NE	U	NE	NE	O
1. Goods in transit shipped "FOB destination" by supplier were recorded as a purchase but were excluded from ending inventory.
2. Goods held on consignment were included in inventory count and recorded as a purchase.
3. Goods in transit shipped "FOB shipping point" were not recorded as a sale and were included in ending inventory.
4. Goods were shipped and appropriately excluded from ending inventory but sale was not recorded.