The inventory at the end of the year was understated by $14,750. (a) Did the error cause an overstatement or an understatement of the gross profit for the year? (b) Which items on the balance sheet at the end of the year were overstated or understated as a result of the error?

Requirement 2: Why is it important to take a physical inventory periodically when using a perpetual inventory system? In Financial Accounting I, you learned that the cost concept of accounting requires accountants to record all items purchased at their cost. Why do you think the accounting profession has decided to violate the cost concept and reduce the value of inventory in these circumstances?

Please explain why it is important to take a physical inventory periodically when using a perpetual inventory system.