X Company prepares monthly financial statements. In January, it purchased inventory on account. The accountant recorded the transaction as an increase in Inventories and an increase in Retained Earnings. As a result, which of the following is true regarding the January financial statements?

Inventories were understated. Accounts Receivable was overstated. Expenses were understated. Revenue was understated. Accounts Payable was understated. Retained Earnings was understated.