WAEC Accounting 2017 Paper

Concept:Understating closing stock increases the cost of goods sold, which reduces the reported profit.Explanation:The cost of goods sold is calculated as:$$\text{Cost of Goods Sold} = \text{Opening Stock} + \text{Purchases} - \text{Closing Stock}$$When closing stock is understated, the value subtracted is lower than the actual closing stock.As a result, the cost of goods sold becomes overstated.A higher cost of goods sold leads to a lower gross profit.Since net profit is based on gross profit, the net profit also decreases.Answer:B. decrease in profit