Supplementary Notes to Chapter 6

Supplementary Notes to Chapter 6 - Supplementary Notes to...

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Supplementary Notes to Chapter 6 – Appendix B Income Statement Effects o The ending inventory of one period becomes the beginning inventory of the next  period Inventory errors affect the computation of cost of goods sold and net  income in both the period of the error and the next subsequent period NOTE:   1.) An error in the ending inventory of the current period will have a reverse effect on net  income of the next accounting period.  (That is because an error in ending inventory for  the current year becomes an error to next year’s’ beginning inventory).   2.) The error in the current period and the subsequent follow-through error in the next period  in net income will offset each other. Inventory Error Cost of Goods Sold Net Income Understate Beginning  Inventory Understated Overstated Overstate Beginning  Inventory Overstated Understated
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