Question

While observing a client's annual physical inventory, an auditor conducted test counts for certain test counts when higher than the recorded quantities in the client's perpetual records. This situation could be the result of the client's failure to record.

• A. Purchase returns
• B. Sales returns
• C. Goods with consignor
• D. Purchase discounts

Answer 1

Answer: (B)

Sales returns

Quantity of goods will be reduced in case there is a sales return.

If sales return is not recorded in the perpetual records but the goods is physically moved, in such case perpetual inventory records shows the higher quantity compared to the actual quantity available in stocks.