ANSWERS: 2
  • Yes, that is correct. Your cost of goods sold will be understated, resulting in an overstated net income figure.
  • Indeed. As the last answerer said, it will understate cost of goods sold, and so inflate net income. Hilariously enough, this will possibly increase your tax liability. I can think of a few edge cases where this would result in a substantial loss of money. Personally, that makes it better to understate, rather than overstate, inventory.

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