Due to a clerical error, a company overstated by $50,000 the amount of inventory

Question

Due to a clerical error, a company overstated by $50,000 the amount of inventory on hand at the end of the year. Will net income for the year be overstated or understated? Identify the two accounts on the year-end balance sheet that will be in error and indicate whether they will be understated or overstated

Due to a clerical error, a company overstated by $50,000 the amount of inventory on hand at the end of the year. Will net income for the year be overstated or understated? Identify the two accounts on the year-end balance sheet that will be in error and indicate whether they will be understated or overstated

Explanation / Answer

CLOSING STOCK IF OVERSTATED WILL INCREASE THE NET INCOME FOR THE YEAR.

SO THE COMPANY'S NET INCOME WILL BE OVERSTATED BY $50000 DURING THE YEAR AS THE CLOSING STOCK IS OVERSTATED BY $50000

The two accounts on the year-end balance sheet that will be in error are

PROFIT & LOSS ACCOUNT = OVERSTATED BY $50000

CLOSING STOCK = OVERSTATED BY $50000

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