Inventory is the most significant asset on the balance sheet. It can make or break a company, depending on the amount of inventory involved. Keeping inventory at a minimum is a best-case scenario.

You are the controller of Toys for Twins, Inc. Linda Barnes, the president, recently mentioned to you that she found an error in the 2006 financial statements which she believes has corrected itself. She determined, in discussions with the Purchasing Department, that the 2006 ending inventory was overstated by $1 million. Linda says that the 2007 ending inventory is correct. Thus, she assumes that 2007 income is correct. Linda says to you, “What happened has happened—there’s no point in worrying about it anymore.”

You conclude that Linda is incorrect. Write a brief 200-300 word, professional memo to Linda and clarify the situation.