Net income is misleading when revenue is overstated or expenses are understated by significant amounts.

Question

Quizplus · Accepted Answer

Net income is calculated as revenue minus expenses. If either of these values is misrepresented or inaccurate, it can cause the net income to be misleading. An overstatement of revenue or an understatement of expenses can make the net income appear higher than it actually is, which can be deceptive to stakeholders who rely on this information for decision making.

Net Income Is Misleading When Revenue Is Overstated or Expenses