Inventory Costs and Relationships LIABILITIES Merchandise ASSETS OWNER'S Inventory EQUITY Net Income Cost of cosTS REVENUES Mdse sold EXPENSES If merchandise inventory is understated Cost of merchandise sold is overstated Gross profit and net income are understated Ending owner's equity is understated c8-5C8 - 5 LIABILITIES OWNER’S EQUITY REVENUES ASSETS COSTS & EXPENSES Inventory Costs and Relationships Merchandise Inventory Cost of Mdse. Sold If merchandise inventory is . . . . . . . understated Cost of merchandise sold is . . . . . . Gross profit and net income are . . . Ending owner’s equity is . . . . . . . . . overstated understated understated Net Income