Question

Albert Company discovers in 2017 that its ending inventory at December 31, 2016, was $5,000 understated. What effect will this error have on:

Answer 1

Answer:

The error will make the net profit at 31 December, 2016 to be understated while a net loss at the same date will be overstated.

Explanation:

The issue is that a higher closing inventory lead to a higher profit while a lower closing inventory will lead to a lower profit.