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X Company is a merchandiser and prepares monthly financial statements. On May 14, X Company purchased merchandise from a supplier on account, and its accountant

X Company is a merchandiser and prepares monthly financial statements. On May 14, X Company purchased merchandise from a supplier on account, and its accountant recorded the transaction as an increase in Inventories and a decrease in Retained Earnings. What was the effect of this incorrect entry on the May 31 financial statements? A. Accounts Payable was understated. B. Profit was overstated. C. Inventories were understated. D. Revenue was understated. E. Retained Earnings was overstated. F. Accounts Receivable was overstated.

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