Effect of Inventory Errors on Financial Statements- D103

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Last updated 4:17 AM on 6/11/26
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9 Terms

1
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When the beginning inventory is correct, and the ending inventory is understated

COGS- overstated

Retained earnings, working capital, current ratio, gross profit, and net income- understated

2
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When the beginning inventory is correct, and the ending inventory is overstated

Retained earnings, working capital, current ratio, gross profit and net income- overstated

COGS- understated

3
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When the beginning inventory is understated, and the ending inventory is correct

Net Income and Gross Profit- Overstated,

COGS- Understated

4
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When the beginning inventory is overstated, and the ending inventory is correct

COGS- Overstated

Net Income and Gross Profit- Understated

5
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When purchases and inventory are understated

Current Ratio- overstated

Accounts Payable and ending inventory- Understated

6
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When purchases and inventory are overstated

Accounts payable and ending inventory- Overstated

Current ratio- Understated

7
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When purchases are understated

Net income and gross profit- overstated

COGS- Understated

8
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When purchases are overstated

COGS- Overstated

Net income and gross profit-understated

9
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COGS Equation

Beginning Inventory + Purchases - Ending Inventory = COGS