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Inventory Errors definitions Flashcards

Inventory Errors definitions
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  • Inventory Error
    A misstatement in the physical count of goods, leading to incorrect financial reporting for inventory, COGS, and profits.
  • Ending Inventory
    The value of unsold goods at the end of an accounting period, crucial for calculating COGS and net income.
  • Cost of Goods Sold
    The expense representing the cost of inventory sold during a period, directly affected by inventory errors.
  • Gross Profit
    The difference between sales revenue and COGS, impacted by inventory misstatements.
  • Net Income
    The profit remaining after all expenses, including COGS, are subtracted from total revenue.
  • Overstatement
    A reporting error where an amount, such as inventory, is recorded higher than its actual value.
  • Understatement
    A reporting error where an amount, such as inventory, is recorded lower than its actual value.
  • T-Account
    A visual tool used to track changes in account balances, helpful for comparing correct and incorrect inventory records.
  • Beginning Inventory
    The value of inventory on hand at the start of an accounting period, carried over from the previous period's ending inventory.
  • Purchases
    The total cost of inventory items acquired during an accounting period, added to beginning inventory.
  • Goods Available for Sale
    The sum of beginning inventory and purchases, representing all inventory that could be sold during a period.
  • Self-Correction
    The process by which inventory errors reverse their impact over two periods if not repeated, restoring correct totals.
  • Physical Count
    The actual process of counting inventory items to determine the true ending inventory balance.
  • Financial Statement Impact
    The effect that inventory errors have on reported COGS, gross profit, and net income in financial reports.
  • Accounting Period
    A specific time frame, such as a year, for which financial information is reported and analyzed.