Merchandise inventory at the end of the year was understated. Which of the following statements correctly states the effect of the error?
A) Net income is understated.
B) Net income is overstated.
C) Cost of merchandise sold is understated.
D) Merchandise inventory reported on the balance sheet is overstated.

Question

Quizplus · Accepted Answer

When merchandise inventory is understated, the cost of goods sold is overstated, leading to an understatement of net income.

Merchandise Inventory at the End of the Year Was Understated