Effects of Errors in Inventory Valuation
Show the Effect, If

question 98

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 profit for the period 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.
$\begin{array}{|l|l|l|l|l|l|}\hline& & \begin{array}{c}\text { Ending } \\ \text { Inventory }\end{array} & \begin{array}{c}\text { Cost of } \\\text { Goods } \\\text { Sold }\end{array} & \begin{array}{c}\text { Gross } \\\text { Profit on } \\\text { Sales }\end{array} & \begin{array}{c}\text { Profit for } \\\text { the } \\\text { Period }\end{array} \\\hline\text { (a) } & \text { Ending inventory is overstated }\\\hline \text { (b) } & \text { Purchases are understated } & & & & \\\hline \text { (c) } & \text { Beginning inventory is overstated } & & & & \\\hline \text { (d) } & \text { Net sales are overstated } & & & & \\\hline \text { (e) } & \text { Beginning inventory is understated } & & & & \\\hline \text { (f) } & \text { Ending inventory is understated } & & & &\\\hline \end{array}$

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Definitions:

Break-Even Point

The financial point at which total revenues equal total expenses, resulting in no profit or loss.