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When closing inventory will be overstated it will result in :
- a)Net income for the period to be overstated
- b)Cost of goods sold to be understated
- c)Both (a) and (b)
- d)None of theses
Correct answer is option 'C'. Can you explain this answer?
Most Upvoted Answer
When closing inventory will be overstated it will result in :a)Net inc...
Impact of Overstated Closing Inventory
When the closing inventory is overstated, it means that the value of the inventory at the end of the accounting period is more than the actual value. This will have the following impacts:
1. Net Income Overstated:
When the closing inventory is overstated, it means that the cost of goods sold will be understated. This is because the cost of goods sold is calculated by subtracting the value of the closing inventory from the cost of goods available for sale. If the closing inventory is overstated, then the cost of goods sold will be lower, and as a result, the gross profit and net income for the period will be overstated.
2. Cost of Goods Sold Understated:
When the closing inventory is overstated, it means that the cost of goods sold will be understated. This is because the cost of goods sold is calculated by subtracting the value of the closing inventory from the cost of goods available for sale. If the closing inventory is overstated, then the cost of goods sold will be lower than the actual cost, and as a result, the cost of goods sold will be understated.
Therefore, both (a) and (b) are correct. When the closing inventory is overstated, it will result in net income for the period to be overstated and cost of goods sold to be understated.
When the closing inventory is overstated, it means that the value of the inventory at the end of the accounting period is more than the actual value. This will have the following impacts:
1. Net Income Overstated:
When the closing inventory is overstated, it means that the cost of goods sold will be understated. This is because the cost of goods sold is calculated by subtracting the value of the closing inventory from the cost of goods available for sale. If the closing inventory is overstated, then the cost of goods sold will be lower, and as a result, the gross profit and net income for the period will be overstated.
2. Cost of Goods Sold Understated:
When the closing inventory is overstated, it means that the cost of goods sold will be understated. This is because the cost of goods sold is calculated by subtracting the value of the closing inventory from the cost of goods available for sale. If the closing inventory is overstated, then the cost of goods sold will be lower than the actual cost, and as a result, the cost of goods sold will be understated.
Therefore, both (a) and (b) are correct. When the closing inventory is overstated, it will result in net income for the period to be overstated and cost of goods sold to be understated.
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Community Answer
When closing inventory will be overstated it will result in :a)Net inc...
Example ..
opening stock :- 10
purchase :- 2
sales :- 20
actual closing stock:- 2 overcasting closing stock :- 4
than use right information to calculate g.p and cost of goods sold
g.p = sales + c.s -(o.s + purchase)
= 20+2-(10+2)
= 10
cost of goods sold = op.s + purchase - c s
= 10+2-2= 10
use overcast closing stock to calculate g.p and cogs
g.p = Sales+ c.s -( o.s + purchase)
= 20+4-(10+2)
= 12
cogs= o.s + purchase - c.s
= 10+2-4
= 8
opening stock :- 10
purchase :- 2
sales :- 20
actual closing stock:- 2 overcasting closing stock :- 4
than use right information to calculate g.p and cost of goods sold
g.p = sales + c.s -(o.s + purchase)
= 20+2-(10+2)
= 10
cost of goods sold = op.s + purchase - c s
= 10+2-2= 10
use overcast closing stock to calculate g.p and cogs
g.p = Sales+ c.s -( o.s + purchase)
= 20+4-(10+2)
= 12
cogs= o.s + purchase - c.s
= 10+2-4
= 8
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When closing inventory will be overstated it will result in :a)Net income for the period to be overstatedb)Cost of goods sold to be understatedc)Both (a) and (b)d)None of thesesCorrect answer is option 'C'. Can you explain this answer?
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When closing inventory will be overstated it will result in :a)Net income for the period to be overstatedb)Cost of goods sold to be understatedc)Both (a) and (b)d)None of thesesCorrect answer is option 'C'. Can you explain this answer? for CA Foundation 2025 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about When closing inventory will be overstated it will result in :a)Net income for the period to be overstatedb)Cost of goods sold to be understatedc)Both (a) and (b)d)None of thesesCorrect answer is option 'C'. Can you explain this answer? covers all topics & solutions for CA Foundation 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for When closing inventory will be overstated it will result in :a)Net income for the period to be overstatedb)Cost of goods sold to be understatedc)Both (a) and (b)d)None of thesesCorrect answer is option 'C'. Can you explain this answer?.
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