In the year of an overstatement of ending inventory,cost of goods sold will be understated and net income will be overstated.

Question

Quizplus · Accepted Answer

An overstatement of ending inventory means that the value of inventory recorded at the end of the accounting period is higher than the actual value. This results in a lower cost of goods sold, as the cost of goods sold is calculated by subtracting the value of ending inventory from the cost of goods available for sale. As a result, net income is overstated because expenses are lower (cost of goods sold is an expense) and revenue remains the same.

In the Year of an Overstatement of Ending Inventory,cost of Goods