Boreal Bikes’ 31 December 2024 ending inventory was understated by $30,000 because a rack of frames was missed in the count; the purchase invoice was recorded. The error is discovered in January 2025, before the 2024 books are closed. Record the correction.
Boreal Bikes’ 31 December 2024 ending inventory was understated by $30,000 because a rack of frames was missed in the count; the purchase invoice was recorded. The error is discovered in January 2025, before the 2024 books are closed. Record the correction.
Answer
Dr Inventory 30000; Cr Cost of Goods Sold 30000
Accounts - Inventory - Cost of Goods Sold - Retained Earnings - Purchases - Accounts Payable - Sales Revenue Before close the overstated COGS is still in the 2024 ledger, so the credit goes to Cost of Goods Sold and the debit restores Inventory. Retained Earnings is the trap — it holds the error only AFTER closing. Purchases and Accounts Payable are untouched because the invoice was recorded correctly; only the count was wrong.
L1 §7.5; L2 §21.4