Understating beginning inventory will understate
A) assets.
B) cost of goods sold.
C) net income.
D) stockholder's equity.

Question

Quizplus · Accepted Answer

Beginning inventory is used to calculate the cost of goods sold. If beginning inventory is understated, the cost of goods sold will also be understated. This will result in an overstated net income since the cost of goods sold is subtracted from revenue to calculate net income. However, it will not have an impact on assets or stockholder's equity, as they are not directly affected by the cost of goods sold.

Understating Beginning Inventory Will Understate