PRC-1 · Chapter 10 · Question 50 of 100
If a business fails to record closing inventory entirely, what is the impact on the financial statements?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Net profit is understated and Current Assets are understated.
Explanation
Closing inventory reduces Cost of Sales. Omitting it means Cost of Sales remains too high, which understates profit. Simultaneously, the inventory asset is missing from the balance sheet, understating current assets.
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