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WAEC Financial Accounting 2019 Question 21

Question 21

Final Accounts of a Sole Trader

When closing stock is undervalued, the cost of goods sold would be

  1. A.overstated and the gross profit understated.
  2. B.understated and the gross profit overstated.
  3. C.overstated and the gross profit overstated.
  4. D.understated and the gross profit understated.
Show the answer and explanation

Answer: A (overstated and the gross profit understated.)

Explanation

A lower closing stock raises cost of goods sold and lowers gross profit.