Overstating ending inventory in the current year will understate the following year's net income.

Name: Overstating ending inventory in the current year will understate the following year's net income.
Brand: Quizplus
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Question

Quizplus · Accepted Answer

This is because if ending inventory is overstated in the current year, it will be carried over as beginning inventory for the following year. This will result in a lower cost of goods sold, and therefore higher gross profit, in the following year, which will lead to a higher net income.

Overstating Ending Inventory in the Current Year Will Understate the Following