Overstating ending inventory will overstate all of the following exceptGroup of answer choicesassetscost of goods soldnet incomeowner's equity.
Question
Overstating ending inventory will overstate all of the following exceptGroup of answer choicesassetscost of goods soldnet incomeowner's equity.
Solution
Overstating ending inventory will overstate assets, net income, and owner's equity. However, it will not overstate the cost of goods sold.
Here's why:
-
Assets: Inventory is considered an asset. Therefore, if you overstate your ending inventory, your total assets will also be overstated.
-
Net Income: The cost of goods sold is an expense. If you overstate your ending inventory, your cost of goods sold will be understated, which in turn will overstate your net income (since net income is calculated by subtracting expenses from revenues).
-
Owner's Equity: Net income is a component of owner's equity. Therefore, if net income is overstated, owner's equity will also be overstated.
-
Cost of Goods Sold: This is the only item that will not be overstated. In fact, it will be understated. This is because the cost of goods sold is calculated by adding the beginning inventory and purchases during the period, and then subtracting the ending inventory. If the ending inventory is overstated, the cost of goods sold will be understated.
Similar Questions
An error in the physical count of inventory on hand at the end of a period resulted in a $10 000 overstatement of the ending inventory. The effect of this error in the current period is: Group of answer choices Cost of Sales Understated; Profit Understated Cost of Sales Overstated; Profit Overstated Cost of Sales Understated; Profit Overstated Cost of Sales Overstated; Profit Understated
An overstatement of the beginning inventory results in:Question 3Answera.an overstatement of profitb.an understatement of profitc.no effect on the period’s profitd.a need to adjust purchases
Q-mart failed to include inventory that was kept in a separate warehouse in its end-of-the-period inventory count. Explain how this error will affect this year's balance sheet.Multiple select question.This year's total equity will be overstated.This year's total assets will be understated.This year's total equity will be understated.This year's total assets will be overstated.
If ending inventory at the end of the year is understated, what is the effect on cost of goods sold and net income?Multiple choice question.Cost of goods sold will be overstated and net income will be overstated.Cost of goods sold will be understated and net income will be understated.Cost of goods sold will be overstated and net income will be understated.
In year 1 ending inventory is overstated by $2,000. Explain the effect on cost of goods sold, gross profit and net income in year 1 and year 2 Select all answers that apply.Multiple select question.Cost of goods sold in the current year, year 1, will be overstated.Cost of goods sold in the following year, year 2, will be overstated.Gross profit in the current year, year 1, will be overstated.Net income in the next year, year 2, will not be affected by the error.Cost of goods sold in the current year, year 1, will be understated.Gross profit in the next year, year 2, will be understated.Net income in the next year, year 2, will be overstated.
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.