Accounting for IGCSE & O level - Final Statements (Section 7 - No. 9)
What is the impact of understating closing inventory on the current year's net profit?
Overstates the net profit
Understates the net profit
Has no effect on net profit
Understates the cost of goods sold.
Paliwanag
Understating the closing inventory would lead to a higher COGS and lower net profit.