Stock valuation

817 views 2 replies

"When opening stock is overstated, net income for the accounting period will be understated".

Please explain the above statement with reason

Replies (2)

If the closing stock of the previous year is overstated, then the net income to that extent is also overstated, as we show Closing stock to the credit side of the trading account.

Now the previous years closing stock, becomes the opening stock of the subsequent year.  this is shown on the debit side of the Trading account.  that's the reason that the net income will get reduced to the extent opening stock is overstated.

When you are overstating (shown at higher value) Opening Stock, the cost of goods sold increases i.e the expenses increases, there by your profit decreases and hence your income will be understated.

 

 

Leave a Reply

Your are not logged in . Please login to post replies

Click here to Login / Register  

Company
ARTICLESHIP 16 July 2026
Article Assistant

Sahil Agarwal & Company

Mumbai

CA Inter

View Details
Company
ARTICLESHIP 15 July 2026
CA Articles

Kinjal H Shah & Co.

Mumbai

CA Foundation

View Details
Company
Featured 18 July 2026
Senior Manager- Finance & Accounts

apricus india

Ahmedabad

CA

View Details
Company
ARTICLESHIP 23 July 2026
Article

Gianender & Associates

New Delhi

CA Inter

View Details
Company
14 July 2026
Senior Executive/ Manager

H S SHARMA AND CO

Pune

CA Final

View Details
Company
20 July 2026
Senior GST Executive

Chandak Agarwal & Co

Mumbai

Graduate (Any)

View Details
Company
ARTICLESHIP 28 July 2026
Article/Intern/Semi-Qualified/Fresher B.Com

VNSS & Co

Mumbai

Others

View Details
Company
05 July 2026
Financial Controller

NovumLake Partners

Mumbai

CA

View Details