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WAEC Financial Accounting 2000 Question 14

Question 14

Final Accounts of a Sole Trader

Closing stock was overstated. The effect is that

  1. A.amount of goods available was understated
  2. B.cost of goods sold was overstated
  3. C.amount of sales returns was understated
  4. D.gross profit was overstated.
Show the answer and explanation

Answer: D (gross profit was overstated.)

Explanation

Too high a closing stock makes cost of goods sold too low, so gross profit is too high.