In 2016, the internal auditors of Development Technologies, Inc., discovered that (a) 2015 accrued wages of $2 million were not recognized until they were paid in 2016 and (b) a $3 million purchase of merchandise in 2016 was recorded in 2015 instead. The physical inventory count at the end of 2015 was correct. Ignoring income taxes, what journal entries are needed in 2016 to correct each error? Also, briefly describe any other measures Development Technologies would take in connection with correcting the errors.

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Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.