Bonghill Company’s December 31 year-end financial statements had the following error:                                                   December 31, 2019                         December 31, 2020 Ending Inventory                      13,500 understated                      19,800 overstated Depreciation expense              3,600 understated                            - Unearned rental                        5,000 understated                            - Prepaid insurance                      -                                                      8,000 understated There were no other errors during the years 2019 or 2020 and no corrections have been made for any of the errors. (Ignore income tax considerations) What is the net effect of the errors in Bonghill’s December 31, 2020 accumulated profits balance?

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Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.