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What does this sentence mean?
“When inventory is included in purchases at cost and closing inventory at cost, the effect on profit is nil (the same amount is both a debit and a credit in the statement of profit or loss)”
Suppose we make extra purchases at a cost of $100, and these items are still in inventory at the and of the period.
Purchases increase by $100, and closing inventory increases by $100 (provided that they are valued at cost). Therefore the cost of sales stays the same and therefore the profit stays the same.
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