if-a-company-has-an-understated-ending-inventory-what-is-the-effect-on-cost-of-g

Question

If a company has an understated ending inventory, what is the effect on cost of goods sold and gross profit?

Accepted Answer

Cost of goods sold is overstated, leading to an understated gross profit.

Answer

Both cost of goods sold and gross profit are overstated.

Answer

Cost of goods sold is unaffected, but gross profit is understated.

Answer

Cost of goods sold is understated, leading to an overstated gross profit.