If cost of goods sold are understated, then is net income overstated or understated?
If cost of goods sold are understated, then net income would be overstated (inverse relationship). As you can see, if cost of good sold should have been $100 instead of $75, then net income should be $75 and not $100 (assuming no impact to operating expense.
Since there is an inverse relationship, that means net income would be understated if cost of goods sold are overstated.
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If ending inventory is overstated, would cost of goods sold be overstated or understated?
If ending inventory is overstated, then cost of goods sold would be understated. As you can see in the visual below, the incorrectly stated inventory balance is $25 higher than the correct ending inventory balance. Since we can assume that beginning inventory and purchases would be the same, the difference would impact cost of good...
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If ending inventory is overstated, would net income be overstated or understated?
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If ending inventory is overstated, would cost of goods sold be overstated or understated?
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If ending inventory is overstated, would net income be overstated or understated?
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