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

An error in ending inventory causes an error in the next period’s:

Accounts payable

Depreciation expense

Sales revenue

Beginning inventory

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Verified step by step guidance

Understand the relationship between ending inventory and beginning inventory: Ending inventory of one period becomes the beginning inventory of the next period. Therefore, any error in ending inventory will directly affect the beginning inventory of the subsequent period.

Recognize the impact of inventory errors on financial statements: Inventory errors can affect the cost of goods sold (COGS), which in turn impacts net income and retained earnings. This is why beginning inventory is crucial for accurate financial reporting.

Analyze why the other options are incorrect: Accounts payable, depreciation expense, and sales revenue are not directly affected by inventory errors. These items are influenced by other factors such as purchases, asset usage, and sales transactions.

Relate the error to the accounting equation: Inventory is part of current assets, and errors in inventory can distort the balance sheet and income statement. This highlights the importance of accurate inventory reporting.

Conclude that the correct answer is beginning inventory: Since ending inventory directly rolls over to beginning inventory in the next period, any error in ending inventory will cause an error in beginning inventory.