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When an accountant says that an amount is understated, it means two things:
1. The amount is not the correct amount, and
2. The amount is less than the true amount. In other words, the amount is too small.
To illustrate the term understated, let's assume that a company is reporting its Accounts Payable as $21,000. Let's also assume that the correct or true amount of accounts payable is $23,000. An accountant will say that the reported amount of $21,000 is understated by $2,000.
What else can I help you with?
Prudence Concept in accounting?
preparation of account involve estimations, measurements and and valuations according to the conservatism or prudence concept it is a good practice to follow a procedure that tends to understate things.
If a company uses the periodic inventory system what is the impact on net income of including goods in transit fob shipping point in purchases but not ending inventory?
Understate net income
Joint cost allocations method ignores the revenue generating power ot the cost?
Joint cost allocation methods, such as physical measures or relative sales value, focus on distributing shared costs among products without considering their individual revenue-generating potential. This approach can lead to misleading profitability assessments, as it may allocate a disproportionate share of costs to higher-margin products or understate the costs of lower-margin items. Consequently, businesses may make suboptimal decisions regarding pricing, production, and resource allocation. A more nuanced approach that considers revenue generation could enhance financial decision-making and product strategy.
What are disadvantages of reversing entries?
Some of the disadvantages of reversing entries would be that an error can either overstate or understate the account, reversing entries also doubles the work for accountants and it also increases the chances for errors.
Why a business should record depreciation in the annual account?
Depreciation distributes the cost of using a long term asset over the life of that asset. For example if you use a truck as part of your business that costs 100,000 US$ and has a life of 10 years, you have a few choices. a) Charge the entire 100,000 in the first year, understate income in the first year and over state it in the remaining 9 years the truck get used. b) Charge the 100,000 divided by the life of the truck (10 years) = 10,000 every year the truck get used and allow for a more fair distribution. c) Charge the 100,000 divided by the schedule allowed in the tax code to get a tax break by charging off the asset more quickly than real life. Not using it would understate business expenses and overstate income as illustrated above
How do use understate in a sentence?
To say that the Grand Canyon is nice is to understate its grandeur.
What is the antonyms for understate?
overstate
What is the antonym of understate?
Overstate, exaggerate.
What is a antonym for understate?
overstate, magnify
What is the synonym of understate?
Minimize? Belittle?
Is it unethical for a company to understate its earnings?
yes
Is it unethical to understate earnings?
Unethical and illegal.
What are some antonyms for exaggerate?
Depreciate, minimize or understate.
What is an antonym for enhance?
understate, mute, tone down, subdue
What is the meaning of understate?
Downplaying the significance of an event or emotion.
Why would a company overstate its expense and understate its net income?
Simply to avoid taxes
Can you make a acrostic from the word temptation?
temptation
