If ending inventory is understated, then cost of goods sold is understated.

Question

Quizplus · Accepted Answer

If ending inventory is understated, it means that some of the inventory has not been accounted for, resulting in a lower value of ending inventory. This will cause the cost of goods sold to be overstated as the company would be using a higher value of inventory to calculate the cost of goods sold. Therefore, if ending inventory is understated, cost of goods sold is actually overstated, not understated.

If Ending Inventory Is Understated, Then Cost of Goods Sold