The beginning inventory in Year 2 is under by 3000 and in Ye

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

Solution

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)