Which of the following financial statement line items will be affected in Year 1 if the ending inventory is overstated at the end of Year 1?
A)Cost of goods sold will be overstated.
B)Current assets will be overstated.
C)Current liabilities will be overstated.
D)Net income will be understated.

Question

Quizplus · Accepted Answer

Any errors in ending inventory in will affect the balance sheet (current assets)and the income statement (Cost of Goods Sold,Gross Profit,and Net Income).In terms of the balance sheet,an overstatement in ending inventory overstates current assets.In terms of the income statement,if ending inventory was overstated in Year 1,Cost of Goods Sold was understated,Gross Profit and Income before Income Tax Expense would be overstated in Year 1.(Net Income would be overstated as well,although the effects would be offset somewhat by overstated Income Tax Expense. )

Which of the Following Financial Statement Line Items Will Be