Final answer:
An error in EI can mess up the income statement and the balance sheet.
Step-by-step explanation:
An error in EI (Ending Inventory) can mess up the income statement and the balance sheet.
The income statement reflects the revenues, expenses, and net income for a specific period of time. If there is an error in the calculation of EI, it will affect the cost of goods sold, which in turn affects the gross profit and net income on the income statement.
The balance sheet, on the other hand, shows the financial position of a company at a specific point in time. Ending Inventory is an important component of the balance sheet under current assets. If there is an error in EI, it will impact the accuracy of the balance sheet's assets and retained earnings.