Final answer:
An error in ending inventory (EI) can impact multiple periods. It affects the cost of goods sold (COGS) and financial ratios, leading to inaccurate financial analysis and decision-making.
Step-by-step explanation:
An error in ending inventory (EI) can impact multiple periods. One way it can impact is through the effect on the cost of goods sold (COGS). COGS is calculated by subtracting the beginning inventory from the sum of purchases and EI for a given period. If there is an error in EI, it will have a direct impact on the COGS, which will in turn affect the profitability of the business in multiple periods.
Another way an error in EI can impact is through the distortion of financial ratios. Ratios like gross margin, inventory turnover, and return on assets rely on accurate EI figures. If there is an error in EI, these ratios will be misstated, leading to misleading financial analysis and decision-making.
Therefore, it is crucial for businesses to ensure accurate recording and reporting of ending inventory to avoid the negative impacts that errors in EI can have on financial calculations and decision-making.