After going through the accounting records of Dolfin Corporation in detail, the auditor made a list of observations. You have been asked to review the effect of these observations. For each observation, identify which items on the income statement are overstated or understated. If not affected by the observation, select the "No effect".

Observations While the company accountant was on vacation, the cost of each sale was not recorded for sales transactions All freight costs were charged to Delivery Expense regardless of the terms of sale, Customer returns and allowances were sometimes debited to Estimated Returns Inventory and credited to Sales Office supplies expense was included in administrative expenses. Sales tax collected on each sale was credited to Cost of Goods Sold. Inventory shrinkage was credited to Miscellaneous Selling Expense. Credit card processing fees were debited to cost of Goods Sold. Sales Cost of Goods Sold Gross Profit Operating Expenses Operating Income