What is the effect of overstating inventory on the financial statements?
July 23, 2009 - 9:22 pm
How does fraudulently overstating inventory make a company’s financial statements look better? Specifically the balance sheet and income statement?
When you overstate ending inventory then you reduce your cost of goods sold therefore increasing income.
Beginning InventoryOK
PurchasesOK
Goods available OK
Ending InventoryHIGH
Cost of Goods SoldLOW
IncomeHIGH
July 24th, 2009 at 2:46 am
No it means someone is stealing from the company.
if those inventory units are not being sold or are lost due to disaster
it makes it look like nothing is being sold
References :
July 24th, 2009 at 3:26 am
When you overstate ending inventory then you reduce your cost of goods sold therefore increasing income.
Beginning InventoryOK
PurchasesOK
Goods available OK
Ending InventoryHIGH
Cost of Goods SoldLOW
IncomeHIGH
References :