Nikita Company\'s financial statements show the following. The company recently

Question

Nikita Company's financial statements show the following. The company recently discovered that in making physical counts of inventory, it had made the following errors: Inventory on December 31, 2008, is understated by $56,000, and inventory on December 31,2009, is overstated by $25,000.

COGS                                                  2008             2009               2010

Reported                                           623,000        955,000          780,000

Adjustments (12/31/2008 error)         -56,000          56,000              0

                    (12/31/2009 error)               0             25,000          -25,000

Corrected                                          567,000        1,036,000       755,000    

Q. I don't understand why 56000 is added in the adjustment section of 2009 and 25000i is substracted in that of 2010  

Explanation / Answer

Inventory on December 31, 2008, is understated by $56,000 ,to rectify the error of understating inventory by 56000 for year 2008 and  for making adjustment it is adding back in year 2009,books are closed for year 2008.so adjustment to be done in the following year.

Inventory on December 31,2009, is overstated by $25,000. It will deducted from inventory year 2010 because books were closed 2009.

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