confuesd

Spring Flower
Spring Flower Registered Posts: 14 Regular contributor ⭐ ? ⭐
hi every one,

what the effect on the profit would be if the closing stock were included in the final a/c's at selling price.

A profit would be overstataed

B profit would be understated


I know the answer, but i do not know why is that?

any help will be appreciated. And good luck to all, who are seating june- FRA exam like me.:thumbup:

Comments

  • visha
    visha Registered Posts: 218 ? ? ?
    If your closing stock is higher the gross profits will be higher

    If your closing stock is lower then the gross profit will be lower

    Let us look at that closely

    If your closing stock is higher then your Cost of Good will be lower hence your gross profit wiil be higher

    f your closing stock is lower then your Cost of Good will be higher hence your gross profit wiil be lower
  • JessY
    JessY Registered Posts: 1 New contributor ?
    Fra

    Profit would be overstated this is because all credit entries increase profit (Sales, income received etc). Profit is a credit and so as closing stock is a credit to increase this figure ( ie put more credit into the P&L account) would lead to a higher profit
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