If ending inventory for the year ended December 31, 2019, is overstated by $25,000:

Question

Quizplus · Accepted Answer

If ending inventory for 2019 is overstated, it means that the cost of goods sold (COGS) for 2019 is understated by $25,000. Since COGS is an expense, this would increase net income for 2019 by $25,000.
However, if ending inventory is overstated for one year, it will have an opposite effect on the next year's calculations. Specifically, if ending inventory for 2019 is overstated, it will be carried forward as beginning inventory for 2020, which means beginning inventory for 2020 will be overstated by $25,000. This will result in cost of goods sold for 2020 being overstated by $25,000, which would decrease net income for 2020 by $25,000.

If Ending Inventory for the Year Ended December 31, 2019