Malcolm Lee Industries reported the following amounts in its December 31st financial statements:     2020   2021 Cost of Goods sold   $272,000   $288,400 Ending Inventory   55,200   55,200 Errors were made in each year as follows: in 2020, ending inventory was overstated by $10,000 while in 2021, ending inventory was understated by $6,900. Explain the impact of these errors for 2021 profit and owners’ equity. Profits will be                                                             by $  .   Owners’ equity will be                                                             by $

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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.