Joined: 09 Apr 2010 Location: United States
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Posted: 05 Oct 2010 at 22:08 | IP Logged
From Becker Passmaster, an overstatement of ending inventory will cause an understatement of cost of goods sold, which will result in an overstatement of gross profit (Sales - Cost of goods sold = Gross profit).
Why not understatement of gross profit? If units sold is low, then COGS and sales both are low, so Gross profit is low too.
Joined: 01 Dec 2009 Location: United States
Online Status: Offline Posts: 142
Posted: 06 Oct 2010 at 07:35 | IP Logged
You are thinking in units when you should be thinking in cost of units. An overstatement in ending inventory could be caused by inappropriate recording of the costs of inventory, not amount of units.
From there, logically we assert that if the costs shouldn't be in Ending Inv, they should be in CoGS, reducing profit.
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Topic: inventory’s Gross profit
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