If ending inventory in Period 1 is understated, Cost of Goods Sold in Period 2 is:
A)overstated.
B)understated.
C)not affected.
D)the same as in Period 1.

Question

Quizplus · Accepted Answer

When ending inventory in Period 1 is understated, it means that the cost of goods sold (COGS) in Period 1 is overstated because the costs that should have been assigned to ending inventory are instead expensed as COGS. This leads to a lower beginning inventory for Period 2. Since COGS is calculated as Beginning Inventory + Purchases - Ending Inventory, starting with a lower beginning inventory in Period 2 without adjustments will result in understated COGS for Period 2.

If Ending Inventory in Period 1 Is Understated, Cost of Goods