Omission of owner's goods drawings understates profit with no net capital effect

Steps:

• Correct entry for goods taken for personal use: Debit Drawings account, Credit Purchases account (at cost).
• Crediting Purchases reduces total purchases and thus COGS, increasing gross profit by the goods' value.
• Debiting Drawings reduces owner's capital by the same value when accounts close.
• Omitting entry leaves COGS overstated (no reduction), understating profit; capital unaffected net (correct offsets profit gain and drawings loss).

Why C is correct:

• Per double-entry principle, drawings entry nets zero capital change (profit +value offset by drawings -value); omission understates profit via unadjusted COGS but preserves net capital.

Why the others are wrong:

• A: Profit understated, not overstated, from unreduced COGS.
• B: Profit understated, not overstated; capital unaffected, not understated.
• D: Capital unaffected net, not overstated.

Final answer: C