If ending inventory for the year ended December 31, 2011, is understated, this error will cause owners' equity to be:

Question

Quizplus · Accepted Answer

An understated ending inventory for 2011 will result in an overstated cost of goods sold for 2011, which will reduce net income for 2011. This will cause owners' equity to be understated at the end of 2011. In 2012, the understated ending inventory from 2011 will result in an understated cost of goods sold for 2012, which will increase net income for 2012. This will cause owners' equity to be overstated at the end of 2012.

If Ending Inventory for the Year Ended December 31, 2011