Inventory Assignment Example | Topics and Well Written Essays - 250 words

Inventory - Assignment ExampleBoth the goods and invoice were received in early 19X3, with the invoice being recorded at that time.(b) The above errors had an overall prepare of overstating the balance of owners equity as at December 31, 19X2. In the first error, it is assumed that only the purchases journal was wrongly entered. The effect of understating cost is to an understatement of cost of goods sold, hence overstating the mesh income, which is part of owners equity.The ownership of goods purchased on F.O.B terms revert to the buyer immediately the seller delivers them to the port of delivery. It is therefore assumed that the goods were already on transit by the terminus of business on December 31, 19X2. Therefore the exclusion of this transaction had no effect on the cost of goods sold since it was neither included as purchases nor closing curtain inventory. It will only affect the value of inventory in the balance sheet with no effect and accounts payable or cash. There is no effect on owners equity.Excluding $3,000 from the closing inventory in 19X1 means that the cost of goods sold was understated with the ending result being an overstatement of net income, hence owners equity. Since the amount was not included in 19X2, it means that sales revenue was recognized on these goods with no corresponding