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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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BuyFindarrow_forward

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Error in inventory

During 2016, the accountant discovered that the physical inventory at the end of 2015 had been understated by $42,750. Instead of correcting the error, however, the accountant assumed that the error would balance out (correct itself) in 2016.

Are there any flaws in the accountant’s assumption? Explain.

To determine

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.

To state: if the assumption of accountant has any flaws.

Explanation

In an accounting period, if any errors are being discovered which is affecting prior period, it must be corrected. In the scenario, the inventory account must be debited and owner’s capital account must be credited for the amount of $42,750...

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