This situation is an example of an inventory error that will Errors affect both the income statement and balance sheet.
<h3>What is inventory error?</h3>
Any of the following could lead to an inventory error: Leaving out some items when physically counting inventory. During a physical inventory, some objects should be double counted. clerical mistakes when multiplying or adding inventory information.
Inventory mistakes can result in an inaccurate ending inventory balance, which has an impact on the cost of goods sold and profitability.
To adjust for rent used up during the year that was recorded to the prepaid rent account when paid for;
Rent expense is debited, prepaid rent is credited
<h3>Prepaid rent account</h3>
A prepaid rent account simply a current asset account that's responsible for reporting the amount of future rent expense that was paid in advance of the rental period.
On this note, the amount reported on the balance sheet is the amount that has not yet been used or expired as of the balance sheet date.
Since the average variable cost of producing the book is above the demand curve, the best course of action is to shut down the printing (production) of more books. The author would lose less money by shutting down operations rather than continuing production at a variable cost higher than the demand he's receiving for the books.
In economics, when profit is less than the average variable cost, firms are advised to stop production in the short run and incur economic loss on fixed inputs. This is because with continued operations, total revenue would not only be lower than total cost, but rather, would also be less than total variable cost.