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Inventory Errors quiz #2 Flashcards

Inventory Errors quiz #2
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  • What is the effect of an inventory error on the calculation of days sales in inventory?
    Days sales in inventory will be misstated due to incorrect ending inventory and COGS.
  • If a company’s ending inventory is understated in year one, what is the effect on beginning inventory in year two?
    Beginning inventory in year two will also be understated by the same amount.
  • How does an inventory error affect the calculation of net sales?
    Net sales are not directly affected by inventory errors; the error affects COGS and gross profit.
  • What is the effect of an inventory error on the calculation of operating income?
    Operating income will be misstated in the year of the error due to incorrect COGS.
  • How does an inventory error impact the calculation of net profit margin?
    Net profit margin will be misstated because net income is affected by the inventory error.
  • What is the effect of an inventory error on the calculation of total liabilities?
    Total liabilities are not directly affected by inventory errors.
  • How does an inventory error affect the calculation of shareholders’ equity?
    Shareholders’ equity will be misstated due to the effect of the error on net income and retained earnings.
  • If a company’s ending inventory is overstated in year one, what is the effect on gross profit in year two?
    Gross profit in year two will be understated, correcting the previous year’s overstatement.
  • How does an inventory error impact the calculation of cost of goods available for sale?
    Cost of goods available for sale is not directly affected; the error affects the allocation between ending inventory and COGS.
  • What is the effect of an inventory error on the calculation of net working capital?
    Net working capital will be misstated in the year of the error due to incorrect inventory values.
  • How does an inventory error affect the calculation of quick ratio?
    The quick ratio is not affected by inventory errors because inventory is excluded from the calculation.
  • What is the effect of an inventory error on the calculation of gross profit in the year after the error?
    Gross profit in the year after the error will be misstated in the opposite direction, correcting the previous year’s error.
  • How does an inventory error impact the calculation of total expenses?
    Total expenses will be misstated in the year of the error due to incorrect COGS.
  • What is the effect of an inventory error on the calculation of total revenue?
    Total revenue is not directly affected by inventory errors.
  • How does an inventory error affect the calculation of profit before tax?
    Profit before tax will be misstated in the year of the error due to incorrect COGS and net income.