If revenue for 2010 is understated then:
A)Profit for 2010 is understated and net assets are overstated
B)Profit for 2010 is overstated and net assets are overstated
C)Profit for 2010 is understated and net assets are understated
D)None of the above

Question

Quizplus · Accepted Answer

If revenue for 2010 is understated, it means that the actual revenue earned during the year is higher than what is reported in the financial statements. As revenue forms a part of profit, the profit for 2010 is also understated. As a result, the net assets are also understated because profit contributes to retained earnings which form a part of equity.

If Revenue for 2010 Is Understated Then