Assume TFG Company Uses a Periodic Inventory System and Overstates

question 162

Essay

Assume TFG Company uses a periodic inventory system and overstates its ending inventory by $12,000.In other words,the company counts and states that its ending inventory is $50,000,when in fact the correct ending inventory balance should have been $38,000.Describe how this mistake of overstating inventory affects the income statement.

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Definitions:

Revenues

Revenues are the total amount of money generated by a company from its business activities, like sales of goods and services, before any costs or expenses are deducted.

Costs Incurred

Expenses that a company has recognized or recorded, reflecting amounts spent on operations, projects, or activities.

Transfer of Accounts Receivable

The process of selling or assigning the right to collect on outstanding invoices to another party.

Transferee

An individual or entity that receives the transfer of assets, rights, or interests from another party.