Inventory at the end of the year is overstated. Which of the following statements correctly states the effect of the error?

A) stockholders' equity is overstated
B) cost of goods sold is overstated
C) gross profit is understated
D) net income is understated

Overstated Inventory

A situation where the recorded amount of inventory is higher than the actual inventory available, often due to error or mismanagement.

Stockholders' Equity

The residual interest in the assets of a corporation after deducting its liabilities, often referred to as shareholders' equity or owners' equity.

Gross Profit

A company's revenue minus the cost of goods sold, which measures how much a company earns after deducting the costs associated with producing its products or services.