Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

5. Inventory

Inventory Errors

Financial Accounting

5. Inventory

Inventory Errors

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Multiple Choice

Which of the following situations can create inventory errors?

Recording sales revenue in the wrong period

Failure to record purchases of inventory

Incorrect physical count of inventory at year-end

Overstating accounts payable

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Verified step by step guidance

Understand the concept of inventory errors: Inventory errors occur when the reported inventory value is incorrect due to mistakes in recording transactions, physical counts, or related accounts.

Analyze the first situation: Recording sales revenue in the wrong period does not directly affect inventory, as it pertains to revenue recognition rather than inventory valuation.

Examine the second situation: Failure to record purchases of inventory can create inventory errors because it leads to an understatement of inventory and potentially an incorrect cost of goods sold (COGS).

Evaluate the third situation: An incorrect physical count of inventory at year-end can create inventory errors because the physical count is used to adjust the inventory balance in the accounting records, impacting both inventory valuation and COGS.

Consider the fourth situation: Overstating accounts payable does not directly create inventory errors, as accounts payable relates to liabilities rather than inventory valuation.