Question

How does an error that results in an overstatement of ending inventory affect the elements of the company's financial statements in the current year? Assets = Liab. + Equity Rev. - Exp. = Net Inc. Cash Flow A. + NA + NA - + NA B. - NA - NA + - NA C. + NA + NA NA NA +OA D. + + NA NA + - +OA Multiple Choice Option A Option B Option C Option D

Answer 1

Answer:

A. + NA + NA - + NA

Explanation:

Since in the question there is an overstatement of ending inventory which affect the financial statements i.e increase in the gross profit due to which the net income is also increase that reflects the increment in the retained earning and the equity as well plus the asset side is also increased but it does not have any change in the cash flow statement as it does not involve any transaction of cash

Hence, the first option is correct