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Hi sir
I am doing a question from OT revision, There is a question : During a physical inventory count, one section of inventory is counted twice , what will be impact?
Correct answer is Inventory will be overstated and GP will be overstated as well,
There is an other option which says- Inventory is overstated and COGS is overstated ..
Why not the second option?
i don’t understand the impact on COGS and on GP.Sales – COGS = Profit
COGS = Opening inventory + Purchases – Closing inventory
If closing inventory is overstated (e.g. due to double counting), COGS is UNDERstated. That is why profit is overstated.
(Put some numbers in if you need convincing.)
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