The cost of the goods sold will be low by $5000 when ending inventory is overstated
The company has overstated its inventory in the current year, which has led to a low cost of goods sold. The low cost of goods sold will result in the income statement being too high, eventually resulting in a high net income of $100,000
Cost of goods sold: This metric is used to determine the "direct cost" associated with producing any goods or services (COGS). It covers material expenses, direct labor costs, and direct manufacturing overheads and is directly correlated to revenue. As revenue increases, more resources are required to produce the products or services. A company's COGS, or after-sales revenue, is often listed as line item two on its income statement. Revenue and COGS are deducted to determine gross profit.
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