If the Inventory at the End of the Current Year

question 71

Multiple Choice

If the inventory at the end of the current year is understated and the error is never caught, the effect is to:

• A) Understate profit this year and overstate profit next year.
• B) Overstate profit this year and understate profit next year.
• C) Understate profit this year with no effect on profit next year.
• D) Overstate the cost of goods sold, but have no effect on profit.

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Definitions:

Salary Allowance

A fixed amount or portion of an employee's salary allocated for specific expenses, often tax-exempt.