Asked by Ashley Dias-Stiefel on Jun 19, 2024
Verified
Errors occasionally occur when physically counting inventory items on hand. Identify the financial statement effects of an overstatement of the ending inventory in the current period. If the error is not corrected how does it affect the financial statements for the following year?
Financial Statement Effects
The impact of transactions on the financial statements, affecting the balance sheet, income statement, and cash flow statement.
Ending Inventory Overstatement
This occurs when the reported amount of inventory at the end of a period is higher than its actual value, which can distort financial statements.
- Comprehend the effects of inaccuracies in inventory on financial reports and the methods for rectifying them.
Verified Answer
JM
jasha moncurJun 20, 2024
Final Answer :
The overstatement of ending inventory will cause cost of goods sold to be understated. Consequently, net income for the period will be overstated. The effect on the balance sheet is that assets and owner’s equity will be overstated. The subsequent period will have an overstatement of beginning inventory. This will cause cost of goods sold to be overstated and net income to be understated, counterbalancing the overstatement of income in the prior period.
Learning Objectives
- Comprehend the effects of inaccuracies in inventory on financial reports and the methods for rectifying them.
Related questions
Galena Pharmacy Reported Cost of Goods Sold as Follows Jim ...
If Beginning Inventory Is Understated by $15000 the Effect of ...
A Company Uses the Periodic Inventory Method and the Beginning \(\begin{array}{cc} &&\text ...
An Error in the Physical Count of Goods on Hand \(\begin{array}{cc} ...
Inventory at the End of the Year Is Overstated ...