Question

The beginning inventory in Year 2 is under by 3000 and in Year 3 under by 2000. The purchases in Year 2 are over by 4000, and the purchases in Year 3 are also over by 4000. You find these errors in Year 3 after the books of the previous years have closed. What's the correcting entry

Answer 1

		Cost of Goods Sold = Opening inventory + Purchases for the year-Closing inventory
		Whenever the opening inventory is in under valuation than our cost of Goods sold will be less
		So because of the under inventory of the year 2 and Year 3 there is less cost book by = $ 3000 + $ 2000 = $ 5,000
		And wheneve the purchase is more recorded than it will increase our cost of Goods Sold
		So in the given case purhcase is over in year 2 & Year 3 = $ 8,000
		So it effect as below,	Inventory	COGS
		agaisnt opening inventory	$                        -5,000	$                      -5,000
		Purchase shown extra by $ 8000	$                          8,000	$                       8,000
		Net =	$                          3,000	$                       3,000
		So it means our inventory will increased by $ 3,000 and Cost of Goods sold also increase by $ 3000
		So in the correction we have to reduce COGS and inventory as below
	Journal Entries
	Date	ACCT Title and explanation	Debit	Credit
		Inventory	$3,000
	Year 3	To Cost of Goods Sold		$3,000
		(Correction entry for inventory)