If ending inventory for the year ended December 31, 2017, is understated, this error will cause owners' equity to be:

Question

Quizplus · Accepted Answer

An understated ending inventory in 2017 will cause cost of goods sold to be overstated, reducing net income and thus understating owners' equity at the end of 2017. In 2018, the beginning inventory will also be understated, which will offset the previous year's error, resulting in correctly stated owners' equity by the end of 2018.

If Ending Inventory for the Year Ended December 31, 2017