when inventory is overstated, do I subtract that amount?

Splish Brothers Inc. uses a periodic inventory system. The inventories at January 1, 2021, and December 31, 2022, are correct. However, the ending inventory at December 31, 2021, is overstated by $7,780.

would I subtract this overstated amount from the amount they gave me for Dec. ending Inventory?

also how do i calculate the cumulative effect of the inventory error on total gross profit?

2 Answers

  • 2 months ago
    Favorite Answer

    The ending inventory Dec 21 is too high and therefore the 7780 needs to be subtracted.

    The error causes 2021 profit to be overstated by 7780, and 2022 profit to be understated by 7780. The cumulative effect for both years together is zero.

  • Don G
    Lv 7
    2 months ago

    You subtract the overstated amount from both the Dec 2021 ending inventory and the Jan 2022 beginning inventory.

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