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AUDITING PRACTICE OCAMPO/OCAMPO

AP.3701-Audit of Inventories OCTOBER 2024

INTERNAL CONTROL MEASURES

1. Authority and responsibility for controlling the 6. Deliveries of materials, finished stock and merchandise
inventories should be centralized management and in should be made only upon specific authorizations
one person. emanating at authorized levels.
2. There should be careful selection of inventory 7. Slow-moving, obsolete and damaged stock should be
personnel and intensive training of such personnel in identified and reported following periodic reviews of
policies, objectives and system of inventory control. physical and book records by qualified employees.
Valuation on the basis of approved cost-mark-down
3. Adequate physical facilities for handling and storage of
methods should be reviewed.
inventory should be provided.
8. Safeguards against that action of the element and
4. Adequate system of procedures, forms and reports
inaccuracies in recording receipts and issues should be
related to the management of inventories should be
adopted. Example – Maintaining adequate insurance
developed and implemented.
coverage.
5. Quantitative controls through perpetual inventory
records; book quantities verified with physical counts
at least once a year and differences being investigated,
promptly adjusted and reported to higher authority
should be implemented.

SUBSTANTIVE AUDIT OF INVENTORIES

Inventory Balances

Existence: Recorded inventory exist 11. Verify computations in the inventory listing.
1. Before the client takes the physical inventory, review 12. Review the obsolescence of the inventory by:
and approve the client’s written plan for taking it. a. being alert while observing inventory being taken
2. Observe the client personnel physically counting for damaged, slow-moving, or scrap inventory.
inventory. b. Scanning perpetual records for slow-moving items
and discussing their valuation with client.
3. Confirm inventories on consignment and held in public
warehouses.
Presentation and disclosure: Inventory is classified and
disclosed in accordance with GAAP
Completeness: All inventory of the entity recorded
13. Determine whether accounts are classified and
4. Obtain a copy of prenumbered inventory tags used by
disclosed in the financial statements in accordance
the client in taking inventory and reconcile the tags to
with GAAP.
the listing.
5. For selected items, trace from tags to listing.
6. Perform cutoff procedures. Obtain the receiving report Purchases
number for the last shipment received prior to year-
end and determine that the item is included in Completeness: Purchases that occurred are recorded
inventory. Also, identify the last shipping document Trace a sequence of receiving reports to entries in the
and determine, based on shipping terms, whether the voucher register. Test cutoff. Account for a sequence of
item was properly recorded in sales or inventory. entries in the voucher register.
7. Perform analytical procedures.
Occurrence: Recorded purchases are for items that were
Rights and obligations: Inventory is owned by the entity acquired
8. Determine that consigned inventory has been excluded Examine underlying documents for authenticity and
from inventory and that inventory pledged has been reasonableness. Scan voucher register for large or
properly disclosed. Examine confirmations from unusual items. Trace inventory purchased to perpetual
financial institutions and read minutes of the board of records. Scan voucher register for duplicate payments.
directors’ meetings.
Classification: Purchase transactions have been recorded in
Valuation and allocation: Recorded inventory is valued in the proper accounts
accordance with GAAP
For a sample of entries in the purchases journal, verify the
9. Considering the method the client uses for inventory accuracy of account coding.
valuation, examine invoices for inventory on hand or
trace prior year’s inventory listing to verify cost. Accuracy (Valuation): Purchases are recorded at proper
10. For selected items, determine net realizable value amounts
(NRV) of the inventory and apply the lower of cost or Recompute invoices and compare invoice price to purchase
NRV. order.

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Production
Classification: Production transactions have been recorded
Completeness: All production transactions that occurred in the proper accounts
are recorded
For a sample of entries, verify the accuracy of account
Account for a sequence for production reports. coding.

Occurrence: Recorded production transactions occurred Accuracy (Valuation): Production transactions are
recorded at proper amounts
For selected transactions, examine signed materials
requisitions, approved labor tickets, and allocation of Test cost records by tracing to underlying documents, such
overhead. as bill of materials, labor tickets, authorized labor rates,
and standard overhead rates. Review variances.

- end -

PROBLEM NO. 1
b) On the evening of Dec. 31, there were two trucks in
You were engaged by Quezon Corporation for the audit the company siding:
of the company’s financial statements for the current year • Truck No. CPA 123 was unloaded on January 2 of
ended. The company is engaged in the wholesale business the following year and received on Receiving
and makes all sales at 25% over cost. Report No. 1063. The freight was paid by the
vendor.
The following were gathered from the client’s accounting • Truck No. ILU 143 was loaded and sealed on
records: December 31 but leave the company premises on
January 2. This order was sold for P100,000 per
SALES PURCHASES
Sales Invoice No. 968.
Date Ref. Amount Date Ref. Amount
Balance Balance c) Temporarily stranded at Dec. 31 at the railroad siding
forwarded P5,200,000 forwarded P2,700,000 were two delivery trucks en route to Brooks Trading
Dec. SI No. Dec. RR No. Corporation. Brooks received the goods, which were
27 965 40,000 27 1057 35,000 sold on Sales Invoice No. 966 terms FOB Destination,
Dec. SI No. Dec. RR No. the next day.
28 966 150,000 28 1058 65,000
Dec. SI No. Dec. RR No. d) En route to the client on Dec. 31 was a truckload of
28 967 10,000 29 1059 24,000 goods, which was received on Receiving Report No.
Dec. SI No. Dec. RR No. 1064. The goods were shipped FOB Destination, and
31 969 46,000 30 1061 70,000 freight of P2,000 was paid by the client. However, the
Dec. SI No. Dec. RR No. freight was deducted from the purchase price of
31 970 68,000 31 1062 42,000 P800,000.
Dec. SI No. Dec. RR No.
31 971 16,000 31 1063 64,000 QUESTIONS:
Dec. Closing Dec. Closing
31 entry (5,530,000) 31 entry (3,000,000) 1. When inventory is material to the financial statements,
P - P - the auditor shall obtain sufficient appropriate audit
evidence regarding the existence and condition of
Note: SI = Sales Invoice RR = Receiving Report
inventory by:
a. Attendance at physical inventory counting, unless
Inventory P600,000 impracticable.
Accounts receivable 500,000 b. Performing audit procedures over the entity’s final
Accounts payable 400,000 inventory records to determine whether they
accurately reflect actual inventory count results.
You observed the physical inventory of goods in the c. Both a and b.
warehouse on Dec. 31 and were satisfied that it was d. Neither a nor b.
properly taken.
2. Attendance at physical inventory counting involves:
When performing sales and purchases cut-off tests, you a. Inspecting the inventory to ascertain its existence
found that at Dec. 31, the last Receiving Report which had and evaluate its condition, and performing test
been used was No. 1063 and that no shipments had been counts.
made on any Sales Invoices whose number is larger than b. Observing compliance with management’s
No. 968. You also obtained the following additional instructions and the performance of procedures for
information: recording and controlling the results of the physical
inventory count.
a) Included in the warehouse physical inventory at
c. Obtaining audit evidence as to the reliability of
December 31 were goods which had been purchased
management’s count procedures.
and received on Receiving Report No. 1060 but for
d. All of these.
which the invoice was not received until the following
year. Cost was P18,000.
3. The procedures involve in the attendance at physical
inventory counting
a. Serve as risk assessment procedures.
b. Serve as test of controls.
c. Serve as substantive procedures.

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d. May serve as test of controls or substantive 10. An auditor selected items for test counts while
procedures depending on the auditor’s risk observing a client’s physical inventory. The auditor
assessment, planned approach and the specific then traced the test counts to the client’s inventory
procedures carried out. listing. This procedure most likely obtained evidence
concerning
4. In which of the following cases is attendance at a. Existence. c. Rights.
physical inventory counting impracticable? b. Completeness. d. Valuation.
a. Where inventory is held in a location that may
pose threats to the safety of the auditor. Based on the given information and the result of your
b. Where the auditor will be inconvenienced because audit, determine the adjusted amount for the following:
of the difficulty, time and cost involved in doing
the procedures. 11. Sales
c. Both a and b. a. P5,150,000 c. P5,350,000
d. Neither a nor b. b. P5,250,000 d. P5,400,000
12. Purchases
5. If attendance at physical inventory counting is
a. P3,000,000 c. P3,754,000
impracticable, the auditor shall
b. P3,018,000 d. P3,818,000
a. Perform alternative audit procedures to obtain
sufficient appropriate audit evidence regarding the 13. Inventory
existence and condition of inventory. a. P800,000 c. P864,000
b. Modify the opinion in the auditor’s report. b. P814,000 d. P968,000
c. Make or observe some physical counts on an
14. Accounts receivable
alternative date, and perform audit procedures on
a. P120,000 c. P350,000
intervening transactions.
b. P220,000 d. P370,000
d. Do nothing and just rely on the result of physical
inventory counting conducted by the client. 15. Accounts payable
a. P354,000 c. P 418,000
6. Which of the following may provide sufficient b. P400,000 d. P1,218,000
appropriate audit evidence about the existence and
condition of inventory if attendance at physical
inventory counting is impracticable? PROBLEM NO. 2
a. Inspection of documentation of the subsequent
sale of specific inventory items purchased prior to During your audit of the Makati Corporation for the current
the physical inventory counting. year ended, you found the following information relating to
b. Inspection of documentation of the subsequent certain inventory transactions from your observation of the
sale of specific inventory items purchased after the client’s physical count and review of sales and purchases
physical inventory counting. cutoff:
c. Both a and b. a. Goods costing P180,000 were received from a vendor
d. Neither a nor b. on Jan. 3. The goods were not included in the physical
count. The related invoice was received and recorded
7. When inventory under the custody and control of a
on Dec. 30. The goods were shipped on Dec. 31, terms
third party is material to the financial statements, the
FOB shipping point.
auditor shall obtain sufficient appropriate audit
evidence regarding the existence and condition of that b. Goods costing P200,000, sold for P300,000, were
inventory by shipped on Dec. 31, and were received by the
a. Requesting confirmation from the third party as to customer on Jan. 2. The terms of the invoice were FOB
the quantities and condition of inventory held on shipping point. The goods were included in the ending
behalf of the entity. inventory for the current year and the sale was
b. Performing inspection or other audit procedures recorded in the subsequent year.
appropriate in the circumstances.
c. Performing one or both of the procedures in (a) c. The invoice for goods costing P150,000 was received
and (b). and recorded as a purchase on Dec. 31. The related
d. Relying only on the written representations made goods, shipped FOB destination were received on Jan.
by the client’s management. 2, but were included in the physical inventory as goods
in transit.
8. Which of the following is not one of the independent d. A P600,000 shipment of goods to a customer on Dec.
auditor's objectives regarding the audit of inventories? 30, terms FOB destination, was recorded as a sale
a. Verifying that inventory counted is owned by the upon shipment. The goods, costing P400,000 and
client. delivered to the customer on Jan. 6, were not included
b. Verifying that the client has used proper inventory in the current year ending inventory.
pricing.
c. Ascertaining the physical quantities of inventory on e. Goods valued at P250,000 are on consignment from a
hand. vendor. These goods are included in the physical
d. Verifying that all inventory owned by the client is inventory.
on hand at the time of the count. f. Goods valued at P160,000 are on consignment with a
customer. These goods are not included in the physical
9. An auditor is most likely to inspect loan agreements
inventory.
under which an entity’s inventories are pledged to
support management’s financial statement assertion of
QUESTIONS:
a. Existence or occurrence.
b. Completeness. Based on the given information and the result of your
c. Presentation and disclosure. audit, answer the following:
d. Valuation or allocation.

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1. The inventory as of Dec. 31 is understated by

a. P140,000 c. P230,000 SOLUTION GUIDE (Question No. 1 to 4)
b. P190,000 d. P290,000
Over (Under)
2. The cost of sales for the current year ended is Inventory COS Profit WC
overstated by a
a. P110,000 c. P380,000 b
b. P290,000 d. P440,000 c
3. The profit for the current year ended is misstated by d
a. P 10,000 over c. P190,000 over e
b. P140,000 under d. P290,000 under f

4. The working capital as of Dec. 31 is misstated by

a. P 10,000 over c. P190,000 over
b. P140,000 under d. P290,000 under PROBLEM NO. 3
5. Purchase cut-off procedures should be designed to test Your client, Mandaluyong Company, is an importer and
whether all inventory wholesaler. Its merchandise is purchased from several
a. Owned by the company is in the possession of the suppliers and is warehoused until sold to customers.
company at year-end.
b. Ordered before year-end was received. In conducting your audit for the current year ended, you
c. Purchased and received before year-end was paid were satisfied that the system of internal control was
for. good. Accordingly, you observed the physical inventory at
d. Purchased and received before year-end was an interim date, Nov. 30, instead of at year end. You
recorded. obtained the following information from your client’s
6. The audit of year-end inventories should include steps general ledger:
to verify that the client’s purchases and sales cutoffs Inventory, Jan. 1 P 1,312,500
were adequate. These audit steps should be designed Physical inventory, Nov. 30 1,425,000
to detect whether merchandise included in the physical Sales for 11 months ended Nov. 30 12,600,000
count at year-end was not recorded as a Sales for the year ended Dec. 31 14,400,000
a. Sale in the subsequent period Purchases for 11 months ended Nov. 30
b. Purchase in the current period (before audit adjustments) 10,125,000
c. Sale in the current period Purchases for the year ended Dec. 31
d. Purchase in the subsequent period (before audit adjustments) 12,000,000
7. An auditor usually examines receiving reports to Your audit disclosed the following information:
support entries in the
a. Voucher register and sales returns journal. a) Shipments received in Nov. and
b. Sales journal and sales returns journal. included in the physical inventory but
c. Voucher register and sales journal. recorded as Dec. purchases. P 112,500
d. Check register and sales journal. b) Shipments received in unsalable
condition and excluded from physical
8. The authority to accept incoming goods in receiving inventory. Credit memos had not
should be based on a (an) been received nor chargebacks to
a. Vendor’s invoice. vendors been recorded:
b. Bill of lading. Total at Nov. 30 15,000
c. Materials requisition. Total at Dec. 31
d. Approved purchase order. (including the November
9. For effective internal control, the accounts payable unrecorded chargebacks) 22,500
department generally should c) Deposit made with vendor and charged
a. Ascertain that each requisition is approved as to to purchases in Oct. Product was
price, quantity, and quality by an authorized shipped in Jan. 30,000
employee. d) Deposit made with vendor and charged
b. Stamp, perforate, or otherwise cancel supporting to purchases in Nov. Product was
documentation after payment is mailed. shipped FOB destination on Nov. 29
c. Establish the agreement of the vendor’s invoice and was included in Nov. 30 physical
with the receiving report and purchase order. inventory as goods in transit. 82,500
d. Remove the quantity ordered on the receiving e) Through the carelessness of the
department copy of the purchase order. receiving department shipment in
early Dec. was damaged by rain. This
10. A client's purchasing system ends with the assumption shipment was later sold in the last
of a liability and the eventual payment of the liability. week of Dec. at cost. 150,000
Which of the following best describes the auditor's
primary concern with respect to liabilities resulting QUESTIONS:
from the purchasing system?
a. Commitments for all purchases are made only after Based on the given information and the result of your
established competitive bidding procedures are audit, answer the following:
followed.
b. Accounts payable are not materially understated.
c. Authority to incur liabilities is restricted to one
designated person.
d. Acquisition of materials is not made from one
vendor or one group of vendors.

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1. Which statement is correct regarding physical Question No. 4

inventory counting conducted other than at the date of
Sales, up to 12/31 P14,400,000
the financial statements?
Less sales, up to 11/30 12,600,000
a. For practical reasons, the physical inventory
Sales - December 1,800,000
counting may be conducted at a date, or dates,
Sales without profit ( 150,000)
other than the date of the financial statements.
Sales with profit 1,650,000
b. This may be done irrespective of whether
x Cost ratio
management determines inventory quantities by
COS with profit
an annual physical inventory counting or maintains
COS without profit
a perpetual inventory system.
Total
c. The effectiveness of the design, implementation
and maintenance of controls over changes in
Question No. 5
inventory determines whether the conduct of
physical inventory counting at a date, or dates, Inventory, 1/1 P 1,312,500
other than the date of the financial statements is Net purchases, 12/31
appropriate for audit purposes. Cost of sales
d. All of these. Estimated inventory, 12/31
2. A client maintains perpetual inventory records in both
quantities and pesos. If the assessed level of control
PROBLEM NO. 4
risk is high an auditor will probably
a. Request the client to schedule the physical On April 21 of the current year, a fire damaged the office
inventory count at the end of the year. and warehouse of Muntinlupa Company. The only
b. Apply gross profit tests to ascertain the accounting record saved was the general ledger, from
reasonableness of the physical counts. which the trial balance below was prepared.
c. Increase the extent of tests of controls relevant to
the inventory cycle. Muntinlupa Company
d. Insist that the client perform physical counts of Trial Balance
inventory items several times during the year. March 31
DEBIT CREDIT
3. Gross profit rate for 11 months ended Nov. 30 is
a. 19% c. 21% Cash P 180,000
b. 20% d. 22% Accounts receivable 400,000
4. Cost of goods sold during the month of Dec. using the Inventory, Jan. 1 750,000
gross profit method is Land 350,000
a. P1,290,000 c. P1,440,000 Building 1,100,000
b. P1,320,000 d. P1,470,000
Acc. depreciation P 413,000
5. Estimated inventory at Dec. 31 is
Other assets 56,000
a. P1,710,000 c. P1,740,000
b. P1,725,000 d. P1,860,000 Accounts payable 237,000
Accrued expenses 180,000
SOLUTION GUIDE: Share capital, P100 par 1,000,000
Question No. 3 Retained earnings 520,000
Sales, up to 11/30 P12,600,000 Sales 1,350,000
Less COS, up to 11/30: Purchases 520,000
Inventory, 1/1 P 1,312,500
Operating expenses 344,000 .
Net purchases, 11/30
TGAS Totals P3,700,000 P3,700,000
Inventory, 11/30
Gross profit The following data and information have been gathered:
a. The company’s year-end is Dec. 31.
Computation of adjusted amounts:
b. An examination of the April bank statement and
Inventory, N.P.,11/30 N.P.,12/31 cancelled checks revealed that checks written during
11/30 (11 mos.) (12 mos.) the period April 1 to 21 totaled P130,000: P57,000
paid to accounts payable as of March 31, P34,000 for
Unadjusted 1,425,000 10,125,000 12,000,000 April merchandise purchases, and P39,000 paid for
other expenses. Deposits during the same period
a
amounted to P129,500, which consisted of receipts on
b account from customers with the exception of a P9,500
refund from a vendor for merchandise returned in
c April.
d c. Correspondence with suppliers revealed unpaid
obligations at April 21 of P106,000 for April
e merchandise purchases, including P23,000 for
Adjusted shipments in transit on that date.

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d. Customers acknowledged indebtedness of P360,000 at 10. Which of the following controls most likely addresses
April 21. It was also estimated that customers owed the completeness assertion for inventory?
another P80,000 that will never be acknowledged or a. Receiving reports are prenumbered and
recovered. Of the acknowledged indebtedness, P6,000 periodically reconciled.
will probably be uncollectible. b. Work in process account is periodically reconciled
with subsidiary records.
e. The insurance company agreed that the fire loss claim
c. Employees responsible for custody of finished
should be based on the assumption that the overall
goods do not perform the receiving function.
gross profit ratio for the past two years was in effect
d. There is a separation of duties between payroll
during the current year. The company’s audited
department and inventory accounting personnel.
financial statements disclosed the following
information:
Prior year Two-year prior
PROBLEM NO. 5
Net sales P5,300,000 P3,900,000
Net purchases 2,800,000 2,350,000 You are engaged in the regular annual examination of the
Beginning inventory 500,000 660,000 accounts and records of Valenzuela Manufacturing Co.
Ending inventory 750,000 500,000 for the current year ended. To reduce the workload at year
end, the company, upon your recommendation, took its
f. Inventory with a cost of P70,000 was salvaged and
annual physical inventory on Nov. 30. You observed the
sold for P35,000. The balance of the inventory was a
taking of the inventory and made tests of the inventory
total loss.
count and the inventory records.
QUESTIONS:
The company’s inventory account, which includes raw
Based on given information and the result of your audit, materials and work-in-process is on perpetual basis.
answer the following: Inventories are valued at cost, first-in, first-out method.
1. How much is the adjusted balance of Accounts Payable There is no finished goods inventory.
as of Apr. 21?
The company’s physical inventory revealed that the book
a. P106,000 c. P286,000
inventory of P1,695,960 was understated by P84,000. To
b. P237,000 d. P343,000
avoid delay in completing its monthly financial statements,
2. How much is the net purchases for the period Jan. 1 to the company decided not to adjust the book inventory until
Apr. 21? year-end except for obsolete inventory items.
a. P650,500 c. P673,500
b. P660,000 d. P683,000 Your examination disclosed the following information
regarding the November 30 inventory:
3. How much is the adjusted balance of Accounts a. Pricing tests showed that the physical inventory was
Receivable as of Apr. 21? overstated by P61,600.
a. P354,000 c. P400,000
b. P360,000 d. P440,000 b. An understatement of the physical inventory by P4,200
due to errors in footings and extensions.
4. How much is the sales for the period Jan. 1 to Apr. 21?
c. Direct labor included in the inventory amounted to
a. P1,430,000 c. P1,510,000
P280,000. Overhead was included at the rate of 200%
b. P1,506,000 d. P1,519,500
of direct labor. You have ascertained that the amount
5. How much is the cost of sales for the period Jan. 1 to of direct labor was correct and that the overhead rate
Apr. 21? was proper.
a. P786,500 c. P830,500 d. The physical inventory included obsolete materials with
b. P828,300 d. P835,725 a total cost of P7,000. During December, the obsolete
6. How much is the estimated inventory on Apr. 21? materials were written off by a charge to cost of sales.
a. P570,000 c. P587,775
b. P579,500 d. P623,500 Your audit also disclosed the following information about
the Dec. 31 inventory:
7. How much is the estimated inventory fire loss? a. Total debits to the following accounts during December
a. P477,000 c. P535,000 were:
b. P512,000 d. P579,500 Cost of sales P1,920,800
8. To determine whether accounts payable are complete, Direct labor 338,800
an auditor performs a test to verify that all Purchases 691,600
merchandise received is recorded. The population of b. The cost of sales of P1,920,800 included direct labor of
documents for this test consists of all P386,400.
a. Payment vouchers.
b. Purchase requisitions. QUESTIONS:
c. Receiving reports.
Based on the above and the result of your audit, answer
d. Vendor’s invoices.
the following:
9. What is the reason for ensuring that every copy of a
1. Adjusted amount of physical inventory at Nov. 30
vendor’s invoice has a receiving report?
a. P1,631,560 c. P1,722,560
a. To ascertain that merchandise received by the
b. P1,715,560 d. P1,845,760
company was billed by the vendor.
b. To ascertain that the invoice was correctly 2. Adjusted amount of inventory at Dec. 31
prepared. a. P1,425,760 c. P1,509,760
c. To ascertain that a check was prepared for every b. P1,502,760 d. P1,516,760
invoice.
d. To ascertain that merchandise billed by the vendor
was received by the company.

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3. Cost of materials on hand, and materials included in 8. What form of analytical review might uncover the
work in process as of Nov. 30 existence of obsolete merchandise?
a. P791,560 c. P 882,560 a. Inventory turnover rates.
b. P875,560 d. P1,005,760 b. Decrease in the ratio of gross profit to sales.
c. Ratio of inventory to accounts payable.
4. Cost of materials on hand, and materials included in
d. Comparison of inventory values to purchase
work in process as of Dec. 31
invoices.
a. P728,560 c. P819,560
b. P812,560 d. P942,760
9. An auditor is most likely to learn of slow-moving
5. The amount of direct labor included in work in process inventory through
as of Dec. 31 a. Inquiry of sales personnel
a. P232,400 c. P386,400 b. Inquiry of warehouse personnel
b. P338,800 d. P618,800 c. Physical observation of inventory
d. Review of perpetual inventory records.
6. Which of the following auditing procedures most likely
would provide assurance about a manufacturing 10. The auditor tests the quantity of materials charged to
entity’s inventory valuation? work in process by tracing these quantities to
a. Tracing test counts to the entity’s inventory listing. a. Cost ledgers.
b. Obtaining confirmation of inventories pledged b. Perpetual inventory records.
under loan agreements. c. Receiving reports.
c. Reviewing shipping and receiving cutoff procedures d. Material requisitions.
for inventories.
d. Testing the entity’s computation of standard
overhead rates. SOLUTION GUIDE (Question No. 3 and 4)

7. The physical count of inventory of a retailer was higher Inventory,11/30

than shown by the perpetual records. Which of the Direct labor, 11/30 ( 280,000)
following could explain the difference? Factory overhead, 11/30
a. Inventory item has been counted but the tags Materials, 11/30
placed on the items had not been taken off the Purchases - December 691,600
items and added to the inventory accumulation Total
sheets. Less materials in COS:
b. An item purchased “FOB shipping point” had not Adj. COS – Dec.
arrived at the date of the inventory count and had Direct labor ( 386,400)
not been reflected in the perpetual records. Factory overhead
c. No journal entry had been made on the retailer’s Materials on hand and
books for several items returned to its suppliers. included in WIP
d. Credit memos for several items returned by
customers had not been recorded. J - end of AP.3701 - J

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