If ending inventory for the year ended December 31, 2007, is understated, this error will cause owners' equity to be:

Question

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An understated ending inventory will result in an understated cost of goods sold, which will lead to an overstated net income. This will cause owners' equity to be overstated at the end of 2007. In the following year, the understated ending inventory from the previous year will be used as the beginning inventory, which will result in an overstated cost of goods sold and an understated net income. This will cause owners' equity to be understated at the end of 2008.

If Ending Inventory for the Year Ended December 31, 2007