An error in the ending inventory one period causes an offsetting error in the next period,and as a result:
A)it affects only income statement accounts.
B)it affects only balance sheet accounts.
C)management can ignore the error.
D)it is a self-correcting or counter-balancing error.

Question

Quizplus · Accepted Answer

An error in the ending inventory affects both the balance sheet (inventory balance) and the income statement (cost of goods sold and gross profit). However, if the error in the ending inventory in one period causes an offsetting error in the next period, it is considered a self-correcting or counter-balancing error. This means that eventually, the error will be corrected, and the financial statements will show the correct ending inventory balance and related amounts. As a result, management can ignore the error in the short term, as long as it is eventually corrected.

An Error in the Ending Inventory One Period Causes an Offsetting