Inventory Errors definitions Flashcards
Inventory Errors definitions
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Inventory Error A misstatement in the physical count of goods, leading to incorrect financial reporting for inventory, COGS, and profits. Ending Inventory The value of unsold goods at the end of an accounting period, crucial for calculating COGS and net income. Cost of Goods Sold The expense representing the cost of inventory sold during a period, directly affected by inventory errors. Gross Profit The difference between sales revenue and COGS, impacted by inventory misstatements. Net Income The profit remaining after all expenses, including COGS, are subtracted from total revenue. Overstatement A reporting error where an amount, such as inventory, is recorded higher than its actual value. Understatement A reporting error where an amount, such as inventory, is recorded lower than its actual value. T-Account A visual tool used to track changes in account balances, helpful for comparing correct and incorrect inventory records. Beginning Inventory The value of inventory on hand at the start of an accounting period, carried over from the previous period's ending inventory. Purchases The total cost of inventory items acquired during an accounting period, added to beginning inventory. Goods Available for Sale The sum of beginning inventory and purchases, representing all inventory that could be sold during a period. Self-Correction The process by which inventory errors reverse their impact over two periods if not repeated, restoring correct totals. Physical Count The actual process of counting inventory items to determine the true ending inventory balance. Financial Statement Impact The effect that inventory errors have on reported COGS, gross profit, and net income in financial reports. Accounting Period A specific time frame, such as a year, for which financial information is reported and analyzed.
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