Question

Ending inventory errors in 2018 _________.

1) will affect only 2018
2) will affect the 2019 goods available for sale but will not affect the 2019 ending inventory
3) are offset by the end of 2019, and thus, are not considered errors

Answer 1

Ending inventory errors in 2018 can affect both the 2018 and 2019 financial statements.

Step-by-step explanation:

Ending inventory errors in 2018 may have an impact on both the 2018 and 2019 financial statements.

Option 1 is incorrect because ending inventory errors in 2018 can affect both the 2018 and 2019 financial statements. For example, if 2018 ending inventory is overstated, it will result in an understatement of cost of goods sold for 2018. This, in turn, will lead to an overstatement of net income for 2018. However, the effect will carry over into 2019 because the overstated ending inventory for 2018 becomes the beginning inventory for 2019. This will affect the calculation of cost of goods sold and ending inventory in 2019.

Option 2 is also incorrect because ending inventory errors in 2018 will affect both goods available for sale and ending inventory in 2019. As mentioned earlier, the overstated ending inventory in 2018 becomes the beginning inventory for 2019. Therefore, it will affect both the calculation of goods available for sale and the ending inventory in 2019.

Option 3 is incorrect because ending inventory errors in 2018 are not automatically offset by the end of 2019. These errors need to be corrected through adjusting entries to ensure accurate financial reporting.