Worked-example setupScope and assumptions
- Cedar Trail is fictional, and the $5,000 ending-inventory overstatement is supplied.
- The schedule is pretax and inventory-only; related accounts and reporting conclusions require separate evidence.
- The error remains in next year's opening inventory, and next year's ending inventory is correct.
- Period
- Two consecutive annual periods
- Units
- US dollars
- Rounding
- Display whole dollars
Write the signed error
Cedar's reported ending inventory exceeds its supported amount by $5,000. The signed inventory error is positive $5,000.
Trace the current period
Ending inventory is subtracted in the cost-of-goods-sold relation. Current cost of goods sold is therefore $5,000 too low. Gross profit and pretax income are $5,000 too high. Inventory, assets, and retained earnings before tax are also $5,000 too high at year-end.
Trace the next period
If Cedar does not correct the error, positive $5,000 enters next year's opening inventory. With a correct next ending balance, next-year cost of goods sold is $5,000 too high and pretax income is $5,000 too low. The two-year pretax sum is zero.
That zero is a bridge check. It does not make either annual result correct or decide tax, EPS, materiality, covenant, comparative-statement, disclosure, or control consequences. Complete the independent Northstar task.
Verified calculation · inventory error analysis
The curriculum loader recomputed this example before it entered the site build. Expand any structured input to inspect the stated facts.
- error scenarios
- 1 field
Inspect data
{
"ending_overstatement": {
"ending_inventory_error": 5000
}
}Recomputed result
| Measure | Value |
|---|---|
| current assets error | 5,000 |
| current cost of goods sold error | -5,000 |
| current gross profit error | 5,000 |
| current pretax income error | 5,000 |
| current retained earnings error | 5,000 |
| ending inventory error | 5,000 |
| next period beginning inventory error | 5,000 |
| next period cost of goods sold error if uncorrected | 5,000 |
| next period pretax income error if uncorrected | -5,000 |
| two period pretax income error if uncorrected | 0 |