If an inventory account is overstated at the beginning of the year, the effect will be to
A) overstate net purchases.
B) overstate gross margin.
C) overstate cost of goods available for sale.
D) understate cost of goods sold.

Question

Quizplus · Accepted Answer

An overstated inventory account at the beginning of the year means that the cost of goods available for sale will be overstated because it includes beginning inventory plus purchases. This, in turn, would overstate the cost of goods sold and understate the gross margin.

If an Inventory Account Is Overstated at the Beginning of the Year