Asked by Kayla Driffin on May 16, 2024
Verified
Understating beginning inventory will understate
A) assets.
B) cost of goods sold.
C) net income.
D) owner's equity.
Beginning Inventory
The cost of merchandise on hand for sales at the commencement of an accounting cycle.
Cost Of Goods Sold
The immediate costs linked to the manufacture of products a business sells, involving material and labor costs.
Net Income
The earnings a company retains after removing all expenses and taxes from its revenue.
- Recognize the effect of inventory discrepancies on financial statements.
Verified Answer
EG
Eriany GutierrezMay 19, 2024
Final Answer :
B
Explanation :
Beginning inventory is a key component in calculating cost of goods sold (COGS). Understating beginning inventory will result in a lower COGS and therefore, a higher net income. This is because COGS is subtracted from revenue to calculate gross profit, and a lower COGS will result in a higher gross profit. Higher gross profit will increase net income, which is the amount of profit reported on the income statement. However, assets and owner's equity are not directly affected by understating beginning inventory.
Learning Objectives
- Recognize the effect of inventory discrepancies on financial statements.
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