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If the 2017 inventory balance was understated at year end this would result in and overstatement...

If the 2017 inventory balance was understated at year end this would result in and overstatement of net income in 2018

True or False?

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Answer #1

true, if the inventory is understate in the year 2017, it will reduce the net income in the year 2017. as the gross income =sales +closing stock- purchase - opening stock. The value of gross profit is depend upon the value of closing stock valuation. if it is understatef then the profit will we reduced with same amount. now this understated stock will become the opening stock next year and thus effect the gross proift in opposite way in 2018 , meaning it will increase the gross profit.

Gross profit will further increase the net profit.

so given statment is correct.

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