Omission of opening inventory understates COGS, overstating gross profit

Steps:

• Gross profit = Sales - Cost of Goods Sold (COGS).
• COGS = Opening inventory + Purchases - Closing inventory.
• Omitting opening inventory excludes it from COGS addition.
• This understates COGS, inflating gross profit.

Why B is correct:

• Per COGS formula, excluding opening inventory reduces total COGS, which overstates gross profit by the omitted amount.

Why the others are wrong:

• A: Undervalued closing inventory increases COGS (subtracts less), understating gross profit.
• C: Not deducting trade discount overstates purchases and COGS, understating gross profit.
• D: Omitting sales invoices understates sales revenue, understating gross profit.

Final answer: B