Match each situation to its impact (a-c) on the current year's net income.
-Beginning inventory was understated.
A)Net income for the current year will be overstated.
B)Net income for the current year will be understated.
C)There will be no error effect on net income.

Question

Quizplus · Accepted Answer

When beginning inventory is understated, the cost of goods sold (COGS) will be understated for the year, leading to an overstatement of net income. This is because the COGS calculation starts with the beginning inventory; if it's too low, COGS will be too low, resulting in higher net income.

Match Each Situation to Its Impact (A-C) on the Current