If a company mistakenly counts more items during a physical inventory than actually exist, how will the error affect their bottom line?
A) No change to net income.
B) Net income will be overstated
C) Net income will be understated.
D) Only gross profit will be affected.

Question

Quizplus · Accepted Answer

If the company mistakenly counts more items during a physical inventory than actually exist, it will result in an overstatement of inventory. This means that the cost of goods sold will be understated, resulting in an overstatement of gross profit and net income. Thus, the correct option is B.

If a Company Mistakenly Counts More Items During a Physical