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 ending inventory overstatement of $20 000 will be carried over to the following year as the beginning inventory. This means that the cost of goods sold will be understated by $20 000, leading to an overstatement of net profit by the same amount. Therefore, the correction of this error in the following year will result in a $20 000 reduction in net profit, meaning that net profit will be understated by $20 000.

Ending Inventory for the Current Year Is Overstated by $20