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 statements regarding inventory accounting is false?

An overstatement of ending inventory in one period will have no effect on the next period's net income.

Inventory errors will eventually self-correct over two accounting periods.

An understatement of beginning inventory will understate cost of goods sold.

An overstatement of ending inventory will overstate net income for the period.

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Verified step by step guidance

Step 1: Understand the relationship between inventory accounting and financial statements. Inventory errors can impact the cost of goods sold (COGS), net income, and retained earnings. These effects can carry over to subsequent accounting periods.

Step 2: Analyze the statement 'An overstatement of ending inventory in one period will have no effect on the next period's net income.' This is false because ending inventory of one period becomes the beginning inventory of the next period, affecting COGS and net income in the subsequent period.

Step 3: Evaluate the statement 'Inventory errors will eventually self-correct over two accounting periods.' This is true because the effects of inventory errors on financial statements reverse in the following period, as beginning inventory adjusts.

Step 4: Examine the statement 'An understatement of beginning inventory will understate cost of goods sold.' This is true because beginning inventory is part of the formula for calculating COGS: \( \text{COGS} = \text{Beginning Inventory} + \text{Purchases} - \text{Ending Inventory} \). If beginning inventory is understated, COGS will also be understated.

Step 5: Assess the statement 'An overstatement of ending inventory will overstate net income for the period.' This is true because overstating ending inventory reduces COGS, which increases gross profit and net income for the period.