Question

An inventory error not only affects the current year's cost of goods sold, gross profit, net income, current assets and equity, but also the next period's statements because net purchases in one period is also the net purchases in the next period. cost of goods sold of one period is the cost of goods sold in the next period. ending inventory of one period is the beginning inventory of the next period. beginning inventory of one period is the ending inventory of the next period. Rate your confidence to submit your answer.

Answer 1

The correct answer is "ending inventory of one period is the beginning inventory of the next period."

An inventory error not only affects the current year's cost of goods sold, gross profit, net income, current assets, and equity, but also the next period's statements because ending inventory of one period is the beginning inventory of the next period.

That is why the manager has to be strict regarding the inventory of a company. Inventory has a cost that can be translated into money. So accountants have to be perfect regarding the inventory. So yes, ann error in keeping the inventory affects the company in that the ending inventory of one period is the beginning inventory of the next period. An internal audit can reveal the mistakes in accurately keeping the inventory. So it is better to put extra attention in the process so nothing wrong would be revealed after the audit.