What happens to profit when the accounts are overcast or undercast?

Please can you help me with Overcast and undercast accounts and what it does to profit? How come when a sales account is over cast the profit decreases? And also why does the profit increase when the closing stock has been undervalued? Thanks guys.

Answers

  • KoopaCooper
    KoopaCooper London, UKMAAT, AATQB Posts: 226
    When a company has forecast figures that were too high, there has been an overcast. Conversely, if their forecasts were too low, there has been an undercast.

    If sales were overcast, then the forecast figure for sales was too high - that is, the actual sales figure is lower, so the actual profit is lower.

    If the closing stock was undercast, then the actual closing stock was higher than expected. This means that the actual cost of sales was lower than expected (since COGS = opening stock + purchases - closing stock. Increasing the closing stock decreases the COGS). This in turn means that the profit was higher than expected.

    :)
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