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Internal Controls: Income Statement and Balance Sheet

A new wholesale electronics business would demand an accurate accounting and inventory control system. Having fewer HD televisions in the warehouse may result from an oversight in physical tally or neglect to undertake periodic inventory counts. As a strategy to prevent the loss, the loading dock doors should be safe and under strict lock and key, which should be under the custody of authorized staff members. The shortage may also result from failure to perform regular inventory systems updates after the sale of HD televisions. In this case, authorized employees should regularly update inventory systems to avoid possible mismatches of figures.

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The income statement and balance sheet are two main financial documents affected by missing inventory. A balance sheet reflects the cost of stock regarded as company assets at a specified time or operation period. A beginning inventory should reflect the cost of unsold stock from the previous operation period and, therefore, goods available for sale in the subsequent operations period. The cost of missing inventory assets on the balance sheet would result in a corresponding loss in the value of goods sold for the period of operation.

When the ending inventory value differs from the sum of the previous period’s sales and beginning inventory for next period, mistakes will be reported in the income statement. Missing inventory will result in an understatement of the company’s net income as captured in the income statement. Conducting regular internal audits is a crucial strategy to alert the owner if some part of inventory is missing (Kranacher & Riley, 2019). Internal audits reveal any mismatch between the warehouse’s financial and inventory data. Besides, internal audits effectively reveal potential misstatement, misreporting, and falsehood in the warehouse’s financial statements or altered inventory records.

Reference

Kranacher, M., & Riley, R. (2019). Forensic accounting and fraud examination. John Wiley & Sons.

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StudyCorgi. (2022, September 23). Internal Controls: Income Statement and Balance Sheet. Retrieved from https://studycorgi.com/internal-controls-income-statement-and-balance-sheet/

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StudyCorgi. (2022, September 23). Internal Controls: Income Statement and Balance Sheet. https://studycorgi.com/internal-controls-income-statement-and-balance-sheet/

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StudyCorgi. 2022. "Internal Controls: Income Statement and Balance Sheet." September 23, 2022. https://studycorgi.com/internal-controls-income-statement-and-balance-sheet/.

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StudyCorgi. (2022) 'Internal Controls: Income Statement and Balance Sheet'. 23 September.

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