If both purchases and ending inventory are overstated by the same amount, net income is not affected.

Question

Quizplus · Accepted Answer

When both purchases and ending inventory are overstated by the same amount, the overstatement in purchases increases the cost of goods sold, but the overstatement in ending inventory decreases the cost of goods sold by the same amount. Therefore, these effects cancel each other out, leaving net income unaffected.

If Both Purchases and Ending Inventory Are Overstated by the Same