An overstatement of beginning inventory results in
A)no effect on the period's gross margin.
B)an overstatement of gross margin.
C)an understatement of gross margin.
D)a need to adjust purchases.

Question

Quizplus · Accepted Answer

Overstating beginning inventory means that the cost of goods sold will be lower, resulting in a higher gross margin. However, this overstatement leads to an understatement of the cost of goods sold and subsequently an overstatement of gross margin. Therefore, option C is the best choice. This error does not affect the need to adjust purchases as it does not impact the quantity or cost of goods purchased.

An Overstatement of Beginning Inventory Results in