Chapter 5, Problem 20QS

To determine

Inventory:

Inventory refers to the stock or goods which will be sold in the near future and thus is an asset for the company. It comprises of the raw materials which are yet to be processed, the stock which is still going through the process of production and it also includes completed products that are ready for sale. Thus inventory is the biggest and the important source of income and profit for the business.

Cost of goods Sold: Cost of goods sold is the total expenses or the cost incurred by the business during the process of manufacturing of goods and is directly related to the production. It generally includes the cost of raw material, labor and other manufacturing support costs.

Gross profit: The profit made after subtracting or debiting the costs related to the goods sold from the total revenue earned or made through sales in a fiscal year is the gross profit.

Net income: Net income is the net revenue earned by the company after taking into account various charges, costs, expenses and deductions. The net income is crucial for the shareholders and gives an idea of profitability level of the company.

To Identify: Affect of errors on:

(a) The cost of goods sold of the year 2017

(b) The gross profit of the year 2017

(c) The net income of the year 2017

(d) The net income of the year 2018

(e) The combined net income of the year 2017 and 2018.

(f) The net income of years after 2018.

(a)