An error in the ending inventory of the current period will have a similar but inverse effect on proﬁt of the next accounting period.

Question

Quizplus · Accepted Answer

This is because the cost of goods sold calculation for the next period will be affected by the incorrect ending inventory from the previous period. If the ending inventory was overstated in the previous period, then the cost of goods sold will be understated in the current period, leading to higher profits. Conversely, if the ending inventory was understated in the previous period, the cost of goods sold will be overstated in the current period, leading to lower profits.

An Error in the Ending Inventory of the Current Period