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Invertory probkem

RishebhKumar (Studying) (128 Points)

21 May 2012

1.When closing stock is overstated, profit is overstated.

2.When Opening stock is overstated, profit is understated.

3.When closing stock is understated, profit is understated

4. When opening stock is underrstated, profit is overstated.

Pls explain how profit is overstated and understated when opening and closing stock is over and under stated.

And also some easy way to learn it as i am learning this but got confused always....

Thank You

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2 Replies

Amit Ingale (Student CA Final) (1454 Points)
Replied 22 May 2012

Very simple friend. You even need not byheart it. Consider an imaginary With figures of sales, opening stock , closing stock n exp and its profit (or even u can draw in xam ) and change d stock figures.. op stk 3000 sales 10000 Exp 7000 clo stk 2000 Profit 2000 __________________________ Case 1. opstock increased to 4000 den profit decrease by 1000 Right? Same way do rest thre cases

Vishaljeet Singh (( Expert )) (108 Points)
Replied 24 May 2012

For Learning purpose, treat Opening stock as an EXPENSE and Closing stock as your INCOME, so whenever Closing stock is overstated it means our income has been increased and vice versa. And if Opening stock has been overstated then it means your expenses are increased..obviously it means our profit is decreased ! GOT IT !