Answer to Question #186910 in Accounting for Milan

Question

I asked a similar question awhile ago and you guys answered my question perfectly. Can you guys do the same thing here. The response I received is not helpful because the question is not getting answered. I appreciate all the help you guys provide me and I can't thank you enough. Just analyze each question and provide me a simple explanation based on that question. Thank you.

1. What does it mean when you Understate your Cost of Goods Sold?

2. What does it mean when you Overstate your Cost of Goods Sold?

3. What does it mean when you Understate your Ending Inventory?

4. What does it mean when you Overstate your Ending Inventory?

Answer 1

1-2 For example, in order to pay less VAT, they lower the cost of the goods. This is a fraud. Or underestimate by mistake, suppliers incorrectly indicated the price of goods in documents. They also overestimate the cost of goods in order to pay less income tax, this is also a fraud or overestimate or underestimate by mistake: the price of the goods was calculated incorrectly, etc.

3-4 Also with overstatement or understatement of the cost of inventory. Overstated in order to pay less income tax. They underestimate, for example, the cost of importing inventory: at a reduced cost, it is possible to reduce customs duties and import VAT