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

Question

Quizplus · Accepted Answer

Cost of goods sold equals beginning inventory plus purchases minus ending inventory.As a result,if beginning inventory is understated,then cost of goods sold will be understated.If cost of goods sold (which is an expense)is understated,then net income will be overstated.

An Understatement of the Beginning Inventory Balance Causes Cost of Goods