Understatement of ending inventory causes
A) Cost of goods sold to be overstated and net income to be understated
B) Cost of goods sold to be overstated and net income to be overstated
C) Cost of goods sold to be understated and net income to be understated
D) Cost of goods sold to be understated and net income to be overstated
E) Cost of goods sold to be overstated and net income to be accurate

Question

Quizplus · Accepted Answer

When ending inventory is understated, the cost of goods sold (COGS) will be overstated because the ending inventory is subtracted from the goods available for sale to calculate COGS. Consequently, net income will be understated due to the higher COGS reducing the gross profit.

Understatement of Ending Inventory Causes