An error in the period-end inventory causes an offsetting error in the next period and therefore:
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) Is immaterial for managerial decision making.

Question

Quizplus · Accepted Answer

An error in period-end inventory is said to be self-correcting because it will ultimately correct itself in the next period due to the offsetting error. This means managers cannot ignore the error and must take steps to correct it. It affects both the income statement and balance sheet accounts, as the value of the inventory will impact cost of goods sold (income statement) and the balance sheet's inventory account.

An Error in the Period-End Inventory Causes an Offsetting Error