A small chain of grocery stores made a reporting error and understated its ending inventory. What effect would this have on the income statement for the following year?
In the year of the error:
Ending Inventory is understated → Cost of Goods Sold (COGS) is overstated (because:
COGS = Beginning Inventory + Purchases - Ending Inventory)
Overstated COGS → Net income is understated
In the following year:
The understated ending inventory from the previous year becomes the understated beginning inventory in the new year.
Beginning Inventory is understated → COGS is understated
Understated COGS → Net income is overstated
A voting comment increases the vote count for the chosen answer by one.
Upvoting a comment with a selected answer will also increase the vote count towards that answer by one.
So if you see a comment that you already agree with, you can upvote it instead of posting a new comment.
d1e7a2e
3 weeks, 1 day agobeautyofasia
1 month, 2 weeks ago137a7a9
2 months, 1 week ago34205ac
6 months, 2 weeks ago