true or false- 1. an overstatement of ending inventory will result in an understatement of net income...

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Accounting

true or false-
1. an overstatement of ending inventory will result in anunderstatement of net income in the year the error occurs.
2. In a periodic system, beginning inventory plus net purchasesequals cost of goods sold.
Explain reason in detail.

Answer & Explanation Solved by verified expert

4.1 Ratings (727 Votes)

1) False

Net income is overstated.

Explanation:

1)Ending inventory is Credited in income statement

2)If ending inventory is overstated, gross profit would be overstated and hence net income would be overstated.

2) False

Explanation:

Beginning inventory + Net purchases = cost of goods Available for sale

Cost of goods sold is computed as fallows

                            Beginning inventory                     ****
                          Add: Net purchases                      *****
                Cost of goods available for sale          *****
                   Less: Ending inventory                       (*****)
                         Cost of goods sold                     *****

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