Accounting for IGCSE & O level - Advanced Principles (Section 2 - No. 50)
What is the effect of undervaluing closing inventory?
Understated COGS, overstated gross profit, and overstated profit for the year
Overstated COGS, understated gross profit, and understated profit for the year
No effect
Understated COGS, understated gross profit, and understated profit for the year
Explanation
It results in an overstatement of the cost of goods sold, which leads to an understatement of gross profit and net profit.
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