company makes two errors in the physical count of inventory. Beginning inventory was understated by $28,000 and ending inventory is understated by $43,000. Which of the following will be the net effect of the two errors?

Question

Quizplus · Accepted Answer

The net effect on net income for the current year is an understatement of $15,000. This is because the cost of goods sold (COGS) is understated by $28,000 due to the beginning inventory being understated, and then COGS is overstated by $43,000 due to the ending inventory being understated. The net effect is an understatement of COGS by $15,000 ($43,000 - $28,000), which leads to an understatement of net income by the same amount.

Company Makes Two Errors in the Physical Count of Inventory