Accounting for IGCSE & O level - The Fundamentals Of Accounting (Section 41 - No. 17)
If a company overestimates its liabilities at the end of an accounting period, what is the impact on net income?
Net income is unaffected.
Net income is overstated.
Net income is understated.
The impact on net income cannot be determined.
Explanation
Overstating liabilities results in higher expenses and thus reduces net income.
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