Accounting for IGCSE & O level - Preparation Of Financial Statements (Section 6 - No. 18)
What effect does an overstatement of the closing inventory have on the cost of goods sold and net profit?
COGS is overstated, net profit is understated
COGS is understated, net profit is overstated
COGS is overstated, net profit is overstated
COGS is understated, net profit is understated
Explanation
Overstating closing inventory causes cost of goods sold to be lower, leading to a higher net profit.
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