Because an inventory error causes an offsetting error in the next period,
A) Managers can ignore the error.
B) It is sometimes said to be self-correcting.
C) It affects only income statement accounts.
D) If affects only balance sheet accounts.
E) Managers can ignore the error and it is sometimes said to be self-correcting.

Question

Quizplus · Accepted Answer

An inventory error is sometimes said to be self-correcting because the error in one period will cause an offsetting error in the next period. This is because the initial error will cause the ending inventory and cost of goods sold in the first period to be incorrect, which will cause the beginning inventory in the second period to be incorrect. However, the error in the beginning inventory will offset the error in the ending inventory from the prior period, resulting in the correct cost of goods sold and net income overall.

Because an Inventory Error Causes an Offsetting Error in the Next