If the revenues are correctly reported and the Gross Profit of a company is understated, what is the effect on Owner's Equity?
A) Understated
B) Overstated
C) Correctly Stated
D) None of the above

Question

Quizplus · Accepted Answer

If the Gross Profit is understated, it means that expenses are overstated. This would lead to lower net income and lower retained earnings, which in turn would result in a lower Owner's Equity. Therefore, Option A "Understated" is the correct answer.

If the Revenues Are Correctly Reported and the Gross Profit