What is the impact on the income statement if the cost of goods availaable were to be incorrectly assigned to the cost of goods sold? Also, is there an impact to the balance sheet?
If the cost of goods available is incorrectly assigned to the cost of goods sold on the income statement, it would result in an inaccurate calculation of the gross profit. The cost of goods available represents the total cost of inventory that a company had available for sale during a specific period, while the cost of goods sold represents the cost of inventory that was actually sold during that period.
By incorrectly assigning the cost of goods available to the cost of goods sold, the gross profit would be understated or overstated. This is because the cost of goods sold is subtracted from the revenue to calculate the gross profit. If the cost of goods available is overstated, it would result in a higher cost of goods sold and a lower gross profit. Conversely, if the cost of goods available is understated, it would result in a lower cost of goods sold and a higher gross profit.
As for the impact on the balance sheet, incorrectly assigning the cost of goods available to the cost of goods sold on the income statement does not directly impact the balance sheet. The balance sheet represents the financial position of a company at a specific point in time, whereas the income statement represents the financial performance over a certain period. However, recording incorrect cost of goods sold could indirectly impact the balance sheet if it leads to erroneous inventory valuation. If there are errors in recording the cost of goods sold, the value of inventory on the balance sheet could be overstated or understated, affecting the accuracy of the assets reported on the balance sheet.