Ending inventory for the current period is understated.What effect will this error have on equity?

Question

Quizplus · Accepted Answer

Since ending inventory is understated, cost of goods sold will be overstated, which will result in a lower net income. As a result, equity will be understated at the end of the current period. However, the error will be corrected in the next period when the beginning inventory for the current period is used as the ending inventory for the previous period, and the correct amount of inventory is recorded. Therefore, equity will be correct at the end of the next period.

Ending Inventory for the Current Period Is Understated