Answer
This omission would have no effect upon the net income for the year, since the purchases and the ending inventory are understated in the same amount. With respect to financial position, both the inventory and the accounts payable would be understated.
Work Step by Step
Materiality would be a factor in determining whether an adjustment for this item should be made as omission of a large item would distort the amount of current assets and the amount of current liabilities. It, therefore, might influence the current ratio to a considerable extent.
