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WAEC Financial Accounting 2012 Question 3

Question 3

Final Accounts of a Sole Trader

When closing stock is overstated, it would reduce

  1. A.cost of sales and increase gross profit.
  2. B.gross profit and increase cost of sales.
  3. C.purchases and increase sales.
  4. D.sales and increase purchases.
Show the answer and explanation

Answer: A (cost of sales and increase gross profit.)

Explanation

Closing stock is deducted to get cost of sales. A bigger closing stock makes cost of sales smaller, so gross profit becomes bigger.