Part $4$ Inventory Errors

Required

Indicate the effect of the following three errors on working capital, current ratio $($assume that the

current ratio is greater than $1),$ retained earnings, and net income for both $1)$ the current year and $2)$

the subsequent year.

Ending inventory, purchases, and the related accounts payable are understated in the current year.

$($Assume this purchase was recorded and paid for in the following year and that ending inventory in

the subsequent year is correct.$)$

Ending inventory is correct, but a purchase on account was not recorded. $($Assume this purchase was

recorded and paid for in the following year.$)$ Ending inventory in the subsequent year is correct.

Ending inventory for the current year is overstated, but purchases and related accounts payable are

recorded correctly. Ending inventory in the subsequent year is correct.