The understatement of the ending inventory balance causes:
A) Cost of goods sold to be understated and net income to be understated.
B) Cost of goods sold to be overstated and net income to be understated.
C) Cost of goods sold to be overstated and net income to be overstated.
D) Cost of goods sold to be overstated and net income to be correct.
E) Cost of goods sold to be understated and net income to be overstated.

Question

Quizplus · Accepted Answer

When ending inventory is understated, cost of goods sold is overstated because less inventory is subtracted from the cost of goods available for sale. This results in a lower net income.

The Understatement of the Ending Inventory Balance Causes