Asked Dec 14, 2019

During 20Y5, the accountant discovered that the physical inventory at the end of 20Y4 had been understated by $42,750. Instead of correcting the error, however, the accountant assumed that the error would balance out (correct itself) in 20Y5. Are there any flaws in the accountant’s assumption? Explain.


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Inventory error: Inventory errors are sometimes caused by making mistake, in physical count, in pricing the inventory correctly, or in recognizing the transfer of title for the goods in transit. These inventory errors affect both the income statement as well as the balance sheet.


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