Accounting for IGCSE & O level - Final Statements (Section 6 - No. 26)
If the closing inventory is understated, what impact does this have on the calculated cost of goods sold (COGS)?
COGS is overstated.
COGS is understated.
COGS is unaffected.
It will have no impact on COGS.
Explication
If closing inventory is understated, COGS will be overstated. The formula for COGS is: Beginning Inventory + Purchases - Ending Inventory. If ending inventory is less, then COGS will be more.