Final answer:
Inventory costing affects the balance sheet, income statement, and indirectly affects the statement of cash flows; however, it does not directly impact the statement of retained earnings, making statement #4 false.
Step-by-step explanation:
The question asks which statement about the financial statement impact of inventory costing is false. To address this, we need to understand how inventory costing interacts with various components of financial statements:
- Inventory costing does indeed affect the balance sheet, because it determines the value of the ending inventory and consequently alters the total assets.
- It also affects the income statement through the cost of goods sold (COGS). If inventory costing is higher, COGS will increase, reducing net income.
- Moreover, inventory costing impacts the statement of cash flows indirectly. Changes in inventory levels and COGS can affect the cash flow from operating activities through changes in working capital.
- However, inventory costing itself does not directly affect the statement of retained earnings. The statement of retained earnings is influenced by net income (which is affected by COGS) and dividends. So, while inventory costing can indirectly affect retained earnings through net income, statement #4 is false as inventory costing does not have a direct effect.