Asked by Mohamad Arshil Vahora on Jul 13, 2024
Verified
An understatement of the ending inventory balance will overstate cost of goods sold and understate net income.
Ending Inventory Balance
The value of unsold goods that a company holds at the end of an accounting period.
Cost Of Goods Sold
The total direct expenses related to producing goods sold by a business.
Net Income
The profit a company has after deducting all its expenses from its total revenue.
- Understand the effect of inaccuracies in inventory valuation on financial statements and indicators of company performance.
- Acquire knowledge about the impact of cost flow assumptions on the valuation of ending inventory and the expense of goods sold.
Verified Answer
MG
Maria GaytanJul 17, 2024
Final Answer :
True
Explanation :
This statement is true because if the ending inventory balance is understated, it means that some inventory that was not sold is accounted for as if it was sold, resulting in a lower balance of inventory and a higher cost of goods sold. This will thus reduce net income.
Learning Objectives
- Understand the effect of inaccuracies in inventory valuation on financial statements and indicators of company performance.
- Acquire knowledge about the impact of cost flow assumptions on the valuation of ending inventory and the expense of goods sold.
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