If a company understates its inventory,what will be the effects on cost of goods sold and net income for the current year?

Question

Quizplus · Accepted Answer

When inventory is understated, the cost of goods sold (COGS) will be overstated because the ending inventory is subtracted from the cost of goods available for sale to determine COGS. An overstated COGS will lead to an understated net income because COGS is an expense, and higher expenses reduce net income.

If a Company Understates Its Inventory,what Will Be the Effects