On December 31 of the current year, Aztec Company understated ending Merchandise Inventory by $10,000. How does this error affect the Cost of Goods Sold and the Net Income for the current year?
1 answer
Question:
On December 31 of the current year, Aztec Company understated ending Merchandise Inventory by $10,000. How does this error affect the Cost of Goods Sold and the Net Income for the current year?
Answers
Answer:Cost of goods sold will be overstated by $10,000Net income will be understated by $10,000Explanation:The movements in inventory account can be shown asOpening balance + purchases - cost of goods sold = ending balanceAs such, understating the ending balance would result in an overstatement of cost of goods sold. This will in turn result in an understatement of gross and net income.
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