If ending inventory is overstated by $5,000 in 20X3,retained earnings will be overstated in 20X3.

Name: If ending inventory is overstated by $5,000 in 20X3,retained earnings will be overstated in 20X3.
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Ending inventory is a balance sheet item, which means that if it is overstated, assets will be overstated as well. Since retained earnings is calculated by subtracting expenses from revenue, an overstated inventory will lead to an overstated net income and, consequently, an overstated retained earnings.

If Ending Inventory Is Overstated by $5,000 in 20X3,retained Earnings