Inventory errors

Question

Inventory errors

Quizplus · Accepted Answer

Inventory errors not only affect the balance sheet but also the income statement since they impact both the ending inventory and the cost of goods sold. An error in the ending inventory of one period becomes an error in the beginning inventory of the next period, demonstrating the inter-period effects of inventory errors. Additionally, there is an inverse relationship between ending inventory and cost of goods sold; if ending inventory is overstated, cost of goods sold is understated, and vice versa.

Inventory Errors