An overstatement of the 2013 ending inventory results in an understatement of net income during 2014.

Question

Quizplus · Accepted Answer

If the 2013 ending inventory is overstated, then the cost of goods sold will be understated, leading to an overstated gross profit and net income for 2013. However, when calculating the cost of goods sold for 2014, the overstated ending inventory from 2013 will be used, leading to an understatement of cost of goods sold and an overstatement of gross profit and net income for 2014.

An Overstatement of the 2013 Ending Inventory Results in an Understatement