Cesar Company understated its inventory by $20,000 at December 31, 2022. It did not correct the error in 2022 or 2023. As a result, Cesar's owner's equity was:

Question

Quizplus · Accepted Answer

The understatement of inventory in 2022 causes an understatement of assets and owner's equity for that year. However, the error self-corrects in 2023 as the beginning inventory for 2023 is understated, leading to an understatement of cost of goods sold and an overstatement of net income, thus correcting the owner's equity.

Cesar Company Understated Its Inventory by $20,000 at December 31