The constant in a system is the control.
I don't what the answer is but I will look for it
Answer:
The understatement of the ending inventory balance would result in an overstatement of the cost of goods sold. This will in turn result in an understatement of the gross and net profits for the year in the p/l.
Explanation:
The relationship between the elements of inventory in a financial statement is as shown below,
Opening balance + purchases - cost of goods sold = closing balance
As such, the understatement of the ending inventory balance would result in an overstatement of the cost of goods sold. This will in turn result in an understatement of the gross and net profits for the year in the p/l.
You don't want all of your eggs in one basket. If one stock and/sector of the market sinks, hopefully it will be offset by your diversification.
