JAMB Accounting 2015 Objective — Question 9

Question 9 of 50 from the Joint Admissions and Matriculation Board (JAMB) Accounting 2015 Objective paper, with the correct answer and a full explanation.

If the inventory at the end of the current year is understated and the error is not caught during the following year, the effect is to

A. overstate income this year and understate income next yearCorrect
B. overstate income this year and overstate income next year
C. understate this year's income with no effect on next year's
D. overstate the income for the two-year period

Explanation

Understated closing inventory overstates cost of goods sold, understating income this year; the following year, opening inventory is understated, understating COGS and overstating income — the errors offset over the two years but each year is individually misstated.

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