An overstatement of ending inventory will cause
A) An overstatement of assets and equity on the balance sheet.
B) An understatement of assets and equity on the balance sheet.
C) An overstatement of assets and an understatement of equity on the balance sheet.
D) An understatement of assets and an overstatement of equity on the balance sheet.
E) No effect on the balance sheet.

Question

Quizplus · Accepted Answer

Overstating the ending inventory will increase the value of assets on the balance sheet as inventory is reported as an asset. Since equity is calculated as assets minus liabilities, an overstatement of inventory will also result in an overstatement of equity.

An Overstatement of Ending Inventory Will Cause