If a period-end inventory amount is reported in error, it can cause a misstatement in all of the following except:
A) Gross profit.
B) Cost of goods sold.
C) Current assets.
D) Net sales.
E) Net income.

Question

Quizplus · Accepted Answer

The period-end inventory amount is not directly related to net sales, therefore a misstatement in the inventory amount would not cause a misstatement in net sales. However, it would affect the calculation of cost of goods sold, gross profit, and current assets, all of which are dependent on the inventory amount. It would ultimately affect net income as well, as it is calculated by subtracting expenses (including cost of goods sold) from revenue.

If a Period-End Inventory Amount Is Reported in Error, It