When sales returns are understated, net sales is overstated and net income is also understated.

Question

Quizplus · Accepted Answer

When sales returns are understated, net sales are overstated because the returns that should have reduced the sales figure are not fully accounted for. However, this leads to net income being overstated as well, not understated, because the expenses (returns) are underreported, making the profit appear higher than it actually is.

When Sales Returns Are Understated, Net Sales Is Overstated and Net