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Hello tutor. I understand that omitting closing inventory will inflate COGS and then understate profit. But why the answer for this question is (C)?
Can you please enlight me in this issue?
Thank you!
A business has a draft profit per its SPL, it has yet to record the journal for ‘closing inventory’.
What will be the impact on profit?
A. No impact closing inventory only appears on the SOFP
B. Reduces profit as inventory has cost the business cash
C. Increases profitHi,
The journal for closing inventory is DR Inventory (SFP) CR Closing inventory (SPL).
The credit to the SPL will increase the profit.
Thanks
Thank you Tutor for your reply. I really appreciate that!
So, as I understand, the question “What will be the impact on profit?” means that after closing the inventory, what will happen to profit?
Thank you!
Yes, it is just asking whether the profit will go up or down following the closing inventory adjustment.
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