Accounting for IGCSE & O level - Accounting Procedures (Section 22 - No. 47)
What is the effect on profit if a business *overstates* its closing inventory?
Profit is unaffected.
Profit is overstated.
Profit is understated.
The effect cannot be determined.
Explanation
Overstated inventory reduces the cost of goods sold, which results in a higher profit.
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