There Is an Error in Computing Ending Inventory in Year

question 75

Multiple Choice

There is an error in computing ending inventory in Year 1.Which statement is TRUE?

• A)The error will have no effect on Year 2 financial statements.
• B)After three years,the inventory error will counterbalance.
• C)Gross profit will continue to be incorrect until an adjusting entry is made.
• D)The total gross profit for Year 1 and Year 2 combined will be correct.

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Definitions:

Asset

An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide future benefit.

Expense

Money spent or cost incurred in an entity's efforts to generate revenue, representing the cost of doing business.

Trial Balance

An accounting report that lists the balances of all general ledger accounts at a particular point in time to check the accuracy of bookkeeping entries.

Income Statement

A financial statement that shows a company's revenues, expenses, and profit over a specific period.