Question

An entry to record Purchases and related Accounts Payable of $13,000 for merchandise purchased on December 23, 2018, was recorded in January 2019. This merchandise was not included in inventory at December 31, 2018. What effect does this error have on reported net income for 2018? What entry should be made to correct for this error, assuming that the books are not closed for 2018?

Short answer

Purchase is debited by $13,000, and accounts payable is credited by $13,000 to record the purchase on credit.

Step-by-step solution

Purchase of goods

Purchase is considered an expense, and if the expense is not recorded in the books, it will show a higher net income, which means net income was overstated by $13,000.

Journal Entry

Date	Particulars	Debit ($)	Credit ($)
	Purchases	$13,000
	Accounts Payable		$13,000
	(being purchases recorded)