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The following is written in the question:
In addition, darjeeling co made an announcement in october 20X4 of its price promise that it would match the prices of any competitor for similar products purchased. Customers who are able to prove that they could purchase the products cheaper elsewhere are asked to claim the difference form darjeeling co, within one month of the date of purchase of goods via its website. The company intends to include a refund liability of 0.25m which is based on the monthly level of claims to date in the draft financial statements
The following is written in the answer:
As this is a new liability the directors may not have correctly accounted for this sum resulting in overstated revenue, under/overstated profits and liabilitiesWhy would the revenue be overstated instead of being misstated
Liabilities are more likely understated than overstated – you should read the notes if you don’t know this.
Therefore, in making the entry:
Dr Revenue/Cr Liability, it is more likely that the liability will be understated – this means the Dr Revenue is also understated – meaning that what remains in the revenue a/c is overstated.If liabilities would be understated then why in the answer it is written that liabilities would be misstated
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