nventory is unde this error in the c Goods Sold Net
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:### Effect of Errors in Beginning Inventory on Financial Statements
If beginning inventory is understated by $11,800, the effect of this error in the current period is:
#### Cost of Goods Sold | Net Income
- ⃝ overstated | understated
- ⃝ understated | overstated
- ⃝ understated | understated
- ⃝ overstated | overstated
**Explanation:**
To understand the effects:
1. **Cost of Goods Sold (COGS):**
- When beginning inventory is understated, COGS will also be understated.
2. **Net Income:**
- Since COGS is understated, net income will be overstated.
Therefore, the most accurate description of the effects is:
- Cost of Goods Sold: **understated**
- Net Income: **overstated**
Check the second option accordingly.
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