Inventory Errors - Inventory Errors study objective 8...

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Inventory Errors study objective 8 Indicate the effects of inventory errors on the financial statements. Unfortunately, errors occasionally occur in accounting for inventory. In some cases, errors are caused by failure to count or price the inventory correctly. In other cases, errors occur because companies do not properly recognize the transfer of legal title to goods that are in transit. When inventory errors occur, they affect both the income statement and the balance sheet. Income Statement Effects Under a periodic inventory system, both the beginning and ending inventories appear in the income statement. The ending inventory of one period automatically becomes the beginning inventory of the next period. Thus, inventory errors affect the computation of cost of goods sold and net income in two periods. The effects on cost of goods sold can be computed by entering incorrect data in the formula in Illustration 6B-1 and then substituting the correct data. Illustration 6B-1 Formula for cost of goods sold
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Inventory Errors - Inventory Errors study objective 8...

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