Final answer:
True. Inventory errors are errors in the accounting of inventory counts or costs, and they can be counterbalancing errors, which are naturally corrected over two accounting periods. This is especially true if the ending inventory is misstated, affecting the cost of goods sold and net income, and no adjustments are made.
Step-by-step explanation:
Inventory errors refer to mistakes that occur when a company counts its inventory incorrectly, or when the costs of inventory are not calculated accurately in the accounting records. The statement that inventory errors are counterbalancing errors is True in some circumstances. Counterbalancing errors are mistakes in accounting that occur in one period but are corrected in a subsequent period because their effects cancel out over two periods.
When an inventory error happens, it can affect the cost of goods sold and net income reported in the financial statements. For example, if a company overstates its ending inventory, it will understate the cost of goods sold, leading to an overstatement of income in that period.
In the subsequent period, the error will often reverse itself since the ending inventory of one period is the beginning inventory of the next. Hence, the overstatement of inventory in one period becomes the understatement in the next, effectively counterbalancing the mistake over two accounting periods. This is true only if no corrections are made once the error is discovered.