Question

if a company incurs an expense, but treats it as an asset, net income would be understated true or false

Answer 1

false

Net Income is calculated by taking all revenues and substracting all exenses.If an expense is treated as an asset instead of expense then net income would be overstated.

For Example, Revenues are $ 1000 , cost of goods sold are $ 300, Opearting expenses are $ 200 and one Expense namely advertsing expense of $100 is treated as an asset, then company's net income would be $ 500 ($ 1000-$300-$200) instead of $ 400 ($ 1000-$300-$200-$100) .Thus, Net Income would be overstated as $ 500 instead of $ 400.