Question

An understatement of the 2018 ending inventory will affect ________. (check all hat apply)

1) 2018 cost of goods sold
2) 2019 ending inventory
3) 2019 cost of goods sold
4) 2019 beginning inventory

Answer 1

An understatement of the 2018 ending inventory will affect 2018 cost of goods sold and 2019 beginning inventory.

Step-by-step explanation:

An understatement of the 2018 ending inventory will affect 2018 cost of goods sold and 2019 beginning inventory.

An understatement of the 2018 ending inventory will result in lower reported inventory value for 2018. This will cause the cost of goods sold for 2018 to be higher since the cost of goods sold is calculated by subtracting the ending inventory from the beginning inventory and adding the purchases made during the year.

Additionally, an understatement of the 2018 ending inventory will carry over to affect the beginning inventory for 2019 since the ending inventory of one period becomes the beginning inventory of the next period.