Ending inventory for the current year is overstated by $20 000. What effect will this error have on the following year's Net profit?

Question

Quizplus · Accepted Answer

The overstatement of ending inventory in the current year will cause the beginning inventory of the following year to be overstated, leading to a higher cost of goods sold and thus understating the net profit by $20,000 in the following year.

Ending Inventory for the Current Year Is Overstated by $20