When a company understates the cost of goods sold, what is the effect on the inventory turnover ratio?

Question

Quizplus · Accepted Answer

The cost of goods sold is subtracted from the beginning inventory to calculate the cost of goods available for sale. If the cost of goods sold is understated, it will lead to an overstated gross profit and an understated cost of goods available for sale. This will result in a lower inventory turnover ratio as the cost of goods sold is used as the numerator in calculating the ratio. Therefore, choice B is correct.

When a Company Understates the Cost of Goods Sold, What