Recognizing a loan received as revenue instead of as a liability has a positive effect on the reported financial statements for all of the following except:
A)It understates liabilities.
B)It overstates revenues.
C)It overstates net income.
D)It understates expenses.

Question

Quizplus · Accepted Answer

Recognizing a loan as revenue instead of a liability incorrectly inflates revenue and net income, making the financial health of a company appear better than it actually is. It does not directly affect the reporting of expenses, hence D is the correct answer.

Recognizing a Loan Received as Revenue Instead of as a Liability