Effects of Errors in Inventory Valuation
Show the Effect, If

question 41

Essay

Effects of errors in inventory valuation
Show the effect, if any, of each of the following errors on ending inventory, cost of goods sold, gross profit on sales, and net income by placing the appropriate symbol in each column. In use is the periodic inventory system. Use the following symbols: O = Overstated, U = Understated, NE = No Effect.
$$\begin{array} { | l | l | l | l | l | l | } \hline & & \begin{array} { c } \text { Ending } \\\text { Inventory }\end{array} & \begin{array} { c } \text { Cost of } \\\text { Goods } \\\text { Sold }\end{array} & \begin{array} { c } \text { Gross } \\\text { Profit on } \\\text { Sales }\end{array} & \begin{array} { c } \text { Net } \\\text { Income }\end{array} \\\hline \text { (a) } & \text { Ending inventory is overstated } & & & & \\\hline \text { (b) } & \text { Purchases are understated } & & & & \\\hline \text { (c) } & \text { Beginning inventory is overstated } & & & & \\\hline \text { (d) } & \text { Net sales are overstated } & & & & \\\hline \text { (e) } & \text { Beginning inventory is understated } & & & & \\\hline \text { (f) } & \text { Ending inventory is understated } & & & & \\\hline\end{array}$$

---

Definitions:

Balance Sheet

A balance sheet is a financial statement that presents the assets, liabilities, and shareholders' equity of a company at a specific point in time, offering a snapshot of its financial condition.

Statement of Stockholder's Equity

A financial document that shows changes in the equity section of a company's balance sheet, including retained earnings and issued shares.

Accounting Equation

The fundamental equation of double-entry bookkeeping: Assets = Liabilities + Owner's Equity.

Liabilities

Financial obligations or debts owed by a business to others, which can include loans, accounts payable, mortgages, and other monies owed.