Accounting for IGCSE & O level - Final Statements (Section 9 - No. 20)
If closing inventory is overstated, how does that impact the reported cost of goods sold (COGS) and gross profit?
COGS is overstated, and gross profit is understated.
COGS is understated, and gross profit is overstated.
COGS and gross profit are both understated.
COGS and gross profit are both overstated.
Explanation
Overstating closing inventory results in a lower COGS, therefore a higher gross profit.