Question

Bijoux Company uses a perpetual inventory system. Its bookkeeper properly recorded a $5,000 sale on account, but forgot to record the related cost of the sale of $3,000. As a result of this error, _____. (Check all that apply.)

a. total assets will be too high
b. total assets will be too low
c. net income will be too high
d. net income will be correct
e. total assets will be correct
f. net income will be too low

Answer 1

If a company forgets to record the cost of a sale, the total assets will be too low and net income will be too high.

Step-by-step explanation:

The Bijoux Company's error of not recording the related cost of the sale of $3,000 will have a couple of effects on its financial statements. Firstly, the total assets will be too high because the inventory that was sold has not been deducted. In this case, because the bookkeeper forgot to record the cost of the sale, the company's inventory will be understated, leading to total assets being too low.

Additionally, since the cost of the sale was not recorded, net income will be too high. The cost of goods sold is an expense that should be deducted from revenue to determine net income, but without recording it, net income will be overstated.

Therefore, the correct options are:

• b. total assets will be too low
• c. net income will be too high