State the effects of inventory errors on cost of goods sold and net income for periods 1 and 2. The response should be overstated or understated.
Period 1 Ending Merchandise Inventory is understated
Definitions:
Materiality
A concept in accounting and auditing that refers to the significance of transactions, balances, or errors which could influence the economic decisions of users reading a company's financial statements.
Verifiability
Verifiability in accounting means information in financial statements can be confirmed or corroborated by independent parties using the source documents.
Comparable
This term often refers to financial metrics or properties that are similar enough to be used for comparison purposes in analyses.
Financial Reporting
The process of disclosing financial performance and position of a company through financial statements issued periodically.
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