Question

II. Pretend you are an auditor (I know, I know, this is an amazing dream). Imagine that you are performing the 12/31/20 financial statement audit of Curly's Coffee and Vinyl Shop. During the substantive procedures, you discovered the situations listed below. If it is a misstatement, then you will need to communicate these to the client and request that they be fixed. In that case, write the correcting journal entry that the client should book to correct (all years with errors). Include date, accounts debited and credited, and amounts. If no correcting entry is needed, then write: “no correcting entry necessary” and provide a brief explanation. 1) You tested their annual listing sales invoices as of 12/31/20 and discovered that one of the credit customers placed an order for 250 Tom Waits albums on 12/31/20, but it was not shipped until 01/02/21. Curly's sold the albums for a total of $5,000 and it cost them $3,500. Curly's uses the perpetual inventory system, so your journal entry will need to correct sales revenue and inventory.

Answer 1

"no correcting entry necessary"

The curlys had correctly booked the sales, as the order is already placed by the customer. It is not necessary that the goods are to be shipped in order to raise the invoice and book the sales. However if the purchase order specifically provides for terms that ownership will be transferred only after the shipment of goods then there comes a case sales are to be recognised after the shipment. In the given case, as it is a normal scenario treatment of curlys is correct.