An understatement of the beginning inventory balance causes:
A)Cost of goods sold to be understated and net income to be understated.
B)Cost of goods sold to be understated and net income to be overstated.
C)Cost of goods sold to be overstated and net income to be understated.
D)Cost of goods sold to be overstated and net income to be correct.

Question

Quizplus · Accepted Answer

Understatement of the beginning inventory balance reduces the value of inventory at the beginning of the period, which is subtracted from the cost of goods available for sale to determine the cost of goods sold. Therefore, if the beginning inventory balance is understated, the cost of goods sold will be understated and net income will be overstated.

An Understatement of the Beginning Inventory Balance Causes