In: Accounting
true or false-
1. an overstatement of ending inventory will result in an understatement of net income in the year the error occurs.
2. In a periodic system, beginning inventory plus net purchases equals cost of goods sold.
Explain reason in detail.
1) False
Net income is overstated.
Explanation:
1)Ending inventory is Credited in income statement
2)If ending inventory is overstated, gross profit would be overstated and hence net income would be overstated.
2) False
Explanation:
Beginning inventory + Net purchases = cost of goods Available for sale
Cost of goods sold is computed as fallows
Beginning
inventory
****
Add: Net
purchases
*****
Cost of goods available for
sale
*****
Less: Ending inventory
(*****)
Cost of goods
sold
*****