Understating beginning inventory will understate
A) assets.
B) cost of goods sold.
C) net income.
D) equity.

Question

Quizplus · Accepted Answer

Beginning inventory is used to calculate cost of goods sold, therefore understating beginning inventory will result in an understatement of cost of goods sold. This will in turn result in an overstated net income and an overstated equity (assuming no other adjustments are made). The impact on assets will depend on the specific accounting method used to determine inventory values.

Understating Beginning Inventory Will Understate