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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › meaning help
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.