A company forgets to record a purchase on credit in the Purchases account, but ending inventory is correct. The effect of this mistake in the current year is:

Income

Cost of goods sold

Accounts payable

Retained earnings

a. Overstated

Understated

Understated

Overstated

b. Understated

Overstated

Overstated

Understated

c. Overstated

Understated

Overstated

Understated

d. Understated

Overstated

Understated

Overstated