An overstatement of opening inventory entails an overstatement of Cost of Goods Sold in the current period.

Question

Quizplus · Accepted Answer

An overstatement of opening inventory leads to an understatement of Cost of Goods Sold (COGS) in the current period, because COGS is calculated as Opening Inventory + Purchases - Closing Inventory. If opening inventory is overstated, it increases the base from which closing inventory is subtracted, thus reducing the COGS.

An Overstatement of Opening Inventory Entails an Overstatement of Cost