Valuation of inventory on the balance sheet impacts cost of goods sold on the income statement.

Question

Quizplus · Accepted Answer

The valuation of inventory affects the cost of goods sold (COGS) because the COGS is calculated as the beginning inventory plus purchases during the period minus the ending inventory. Therefore, if the inventory is overvalued, the COGS will be understated, and if the inventory is undervalued, the COGS will be overstated.

Valuation of Inventory on the Balance Sheet Impacts Cost of Goods