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JAMB Principles of Accounts 2004 Question 16

Question 16

Final Accounts of a Sole Trader

Where closing stock is undervalued, the effect is

  1. A.an increase in gross profit
  2. B.a decrease in gross profit
  3. C.an increase in purchases
  4. D.a decrease in purchases
Show the answer and explanation

Answer: B (a decrease in gross profit)

Explanation

Lower closing stock raises cost of sales, so gross profit falls.