Aaron Company uses the periodic inventory cost flow method. If Aaron's ending inventory is understated due to an accounting error, what is the effect on net income and the ending balance of retained earnings?

Question

Quizplus · Accepted Answer

Understating ending inventory in a periodic inventory system will overstate cost of goods sold. If cost of goods sold is overstated, net income for that year and ending retained earnings will be understated.

Aaron Company Uses the Periodic Inventory Cost Flow Method