Make Money Company Inc. had beginning inventory of $25,200, purchases of $87,600, ending inventory of $29,100, sales of $153,000, and operating expenses of $30,000 for 2012. An accounting clerk input the ending inventory as $21,900. What is the effect on 2013 gross profit??

Question

Quizplus · Accepted Answer

The ending inventory for 2012 is understated by $7,200 ($29,100 - $21,900), which means the cost of goods sold for 2012 is overstated by $7,200. This error will carry over to 2013, causing the beginning inventory for 2013 to be understated by $7,200, thus overstating the 2013 gross profit by $7,200.