Question

If the expenses are understated by RM5,000, what is the effect on the net income?

Answer 1

There is Direct relationship between Revenue and net income. It means that, if revenue increases net income will also increase to that extent and vice versa

Further,

There is Indirect relationship between Expenses and Net income. it means that, if expenses increases net income will decrease to that extent and if expenses decreases net income will increase to that extent.

Thus, In this case, Expenses are understated by RM5,000 will result in Net income is overstated by theRM5,000 as there is indirect relationship.