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Financial effects as a result of inventory errors

(All sales and purchases are on credit.)
Indicate in each of the spaces provided the effect of the described errors on the various elements of a company's financial statements. Use the following codes: O = amount is overstated; U = amount is understated; NE = no effect. Assume a periodic inventory system.

Accounts Accounts Cost of
Receivable Inventory Payable Sales Goods Sold
EXAMPLE: Excluded goods in rented
warehouse from inventory NE U NE NE O
count.

1. Goods in transit shipped "f.o.b. destination" by supplier were recorded as a purchase but were excluded from ending inventory.
2. Goods held on consignment were included in inventory count and recorded as a purchase.
3. Goods in transit shipped "f.o.b. shipping point" were not recorded as a sale and were included in ending inventory.
4. Goods were shipped and appropriately excluded from ending inventory but sale was not recorded.

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(All sales and purchases are on credit.)
Indicate in each of the spaces provided the effect of the described errors on the various elements of a company's financial statements. Use the following codes: O = amount is overstated; U = amount is understated; NE = no effect. Assume a periodic inventory system.

Accounts Accounts Cost of
Receivable Inventory Payable Sales Goods Sold
EXAMPLE: ...

Solution Summary

The solution assessed the effects of inventory changes or errors to various parts of a financial statement. Explanations are included to explain how the inventory error applies.

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