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nventory is unde this error in the c Goods Sold Net

nventory is unde this error in the c Goods Sold Net

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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### 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.
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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