If a company overstates its ending inventory for the current year,what are the effects on cost of goods sold and net income for the current year? Effect on Effect on
Cost of Goods Sold Net Income

Question

Quizplus · Accepted Answer

When ending inventory is overstated, cost of goods sold is understated because COGS = Beginning Inventory + Purchases - Ending Inventory. This results in an overstated net income since net income is calculated as Revenue - Expenses (including COGS).

If a Company Overstates Its Ending Inventory for the Current