An error in ending inventory creates errors for two accounting periods.

Question

Quizplus · Accepted Answer

Ending inventory is a critical component in determining cost of goods sold and gross profit for an accounting period. If there is an error in calculating ending inventory, it affects the cost of goods sold, gross profit, and net income for that period. However, it also carries over to the next accounting period and affects the opening inventory balance. This, in turn, affects the cost of goods sold and gross profit calculations for the subsequent period. Therefore, an error in ending inventory impacts two accounting periods.

An Error in Ending Inventory Creates Errors for Two Accounting