Accounting for Costa Company Essay Example | Topics and Well Written Essays - 500 words

Accounting for Costa Company - Essay Example expenses 4,500 Property taxes 6,500 Rent 22,000 Net Income 84,100 1. There are two errors indicated related to inventory and sales of Costa Company. These errors will have profound impact on the company’s financial position as reported in the balance sheet of the company and also in the comprehensive income statement. Errors, omission, and mistakes can mislead users of the financial information about the reality of the business and its financial situation (Weygandt, Kimmel, & Kieso, 2010). Incorrect reporting of closing inventory would not only overvalue company’s assets and hence the size of the company’s book. This would also lead to wrong reporting of cost of goods sold which will have direct impact on the net income generated by the company and also the amount available to be distributed to shareholders. Missing out a revenue transaction will have a negative effect on the net income of the company because costs related to it are already included in costs of g oods sold by the company. This underreporting of net income would in turn affect the equity side of the balance sheet. 2. The income statement of Costa Company after adjustments to two errors reported in the case has generated a net income of $84,100 at the year end. This indicates that the company’s business operations are actually generating enough revenue that is able to cover costs of goods sold and operating expenses and taxes related to the business.