Inventory at the End of the Year Was Understated

question 51

Multiple Choice

Inventory at the end of the year was understated. Which of the following statements correctly states the effect of the error?

• A) net income is understated
• B) net income is overstated
• C) cost of goods sold is understated
• D) inventory reported on the balance sheet is overstated

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Definitions:

Annual Cash Flows

The net amount of cash and cash-equivalents being transferred into and out of a business over a year.

Investment Costing

The process of determining the total costs associated with making an investment.

Direct Materials

Raw materials that can be directly traced to the manufacturing of a specific product.

Variable Manufacturing Overhead

Costs of manufacturing that vary directly with the level of production, such as raw materials or labor costs.