Question

What type of error is the CPA most likely to discover when he/she examines all shipping reports dated in January of 20X1, shipped FOB shipping point, which were recorded in December of 20X0 as credit sales?

1) Accounts receivable are overstated at December 31, 20X0.
2) Accounts receivable are understated at December 31, 20X0.
3) Operating expenses are overstated for the 12 months ended December 31, 20X0.
4) Sales returns and allowance are overstated at December 31, 20X0.

Answer 1

The CPA is most likely to discover that the accounts receivable are understated at December 31, 20X0 when examining shipping reports.

Step-by-step explanation:

The CPA is most likely to discover that the accounts receivable are understated at December 31, 20X0 when examining all shipping reports dated in January of 20X1, shipped FOB shipping point, which were recorded in December of 20X0 as credit sales.

This error occurs because the credit sales recorded in December of 20X0 are not included in the accounts receivable balance at December 31, 20X0. The error results in an understatement of the accounts receivable balance and can have an impact on the financial statements.

For example, if $25,000 worth of credit sales were recorded in December of 20X0 but not included in the accounts receivable balance, the accounts receivable balance would be understated by $25,000.