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Error in inventory 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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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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Chapter
Section
BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 6, Problem 19E
Textbook Problem
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Error in inventory

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.

To determine

State if the assumption of accountant has any flaws.

Explanation of Solution

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.

In an accounting period, if any errors are being discovered which is affecting prior period, it must be corrected...

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Chapter 6 Solutions

Financial And Managerial Accounting
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