If ending inventory is too big which of the following statements is true?
A)Cost of Good Sold is too big and income is too big
B)Cost of Good Sold is too small and income is too big
C)Cost of Good Sold is too small and income is too small
D)Cost of Good Sold is too big and income is too small

Question

Quizplus · Accepted Answer

When ending inventory is overstated, the cost of goods sold (COGS) is understated because the formula for COGS is beginning inventory plus purchases minus ending inventory. If ending inventory is too big, it means less inventory is considered sold, thus reducing COGS. Lower COGS increases gross profit and, consequently, net income, assuming other factors remain constant.

If Ending Inventory Is Too Big Which of the Following