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According to Wild and Shaw (2019), an inventory error causes misstatements in cost of goods sold, gross profit, net income, current assets, and equity. It
According to Wild and Shaw (2019), an inventory error causes misstatements in cost of goods sold, gross profit, net income, current assets, and equity. It also causes misstatements in the next periods financial statements because ending inventory of one period is the beginning inventory of the next.
As outlined in the text by Wild and Shaw (2019, p.226), the effects on the income statement are as follows:
- If ending inventory is understated, cost of goods sold is overstated and net income is understated.
- If beginning inventory is understated, cost of goods sold is understated and net income is overstated.
- If ending inventory is overstated, cost of goods sold is understated and net income is overstated.
- If beginning inventory is overstated, cost of goods sold is overstated and net income is understated.
And the effects on the balance sheet are:
- If ending inventory is understated, assets and equity are understated.
- If ending inventory is overstated, assets and equity are overstated.
What is some other information not stated above regarding inventory errors?
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