Question

How does an overcasting of purchases day book affect the cost of sales and profit?

• A. Cost of sales is decreased while profit is increased
• B. Cost of sales is increased while profit is decreased
• C. Both cost of sales and profit are increased
• D. Cost of sales is increased; gross profit is decreased but net profit remains unaffected.

Answer 1

The correct option is B Cost of sales is increased while profit is decreased

Cost of sales = Opening stock + Purchases - Closing stock
Sales - Cost of sales = profit
Looking at the above two statements it may be observed that if purchases is overcast the cost of sales will increase. And if cost of sales will increase the profit will decrease.
Therefore, cost of sales is increased while profit is decreased.