Kevin, the accountant for Alex Enterprises, made an error in the accounting process for their manufacture of baseball bats. The inventory balances were understated by $10,000. What impact would this error have on both the cost of goods sold (COGS) and net income?
A) COGS would be overstated by $10,000; net income would be overstated by $10,000.
B) COGS would be overstated by $10,000; net income would be understated by $10,000.
C) COGS would be understated by $10,000; net income would be overstated by $10,000.
D) COGS would be understated by $10,000; net income would be understated by $10,000.

Question

Quizplus · Accepted Answer

Improperly understating inventory balances would result in COGS being overstated, and that would consequently result in net income being understated.

Kevin, the Accountant for Alex Enterprises, Made an Error in the Accounting