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Overstated is the opposite of understated in accounting terminology. Accountants use this term to describe an incorrect reported amount that is higher than the true amount. Using the previous inventory example, an accountant determines the balance is $17,000; the balance should be $15,000, however, resulting in an overstated amount.
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BetaFor example, an amount was added instead of subtracted or charged on one invoice when it should have been applied to a different invoice. ... Overstated: Understated: Overstated: Unearned Revenues: Overstated: Overstated: Understated: Understated: Prepaid Expenses: Overstated: Overstated: Understated:
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BetaDefinition of Overstated. When an accountant uses the term overstated, it means two things:. The reported amount is incorrect, and; The reported amount is more than the true or correct amount.; In a double-entry accounting or bookkeeping system, another account will also have an incorrect amount.. Example of Overstated
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BetaNet income overstated. Assets overstated (asset, net of accumulated depreciation, is recorded when there should not be an asset) Retained earnings overstated. 2×12. Expenses overstated (depreciation too high) Net income understated. Assets overstated (asset is still incorrectly recorded, though the net amount is less) Retained earnings overstated
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BetaAnswer: Overstated are the errors made that resulted to a increase to the real amount of the account, while the Understated is the exact opposite of the Overstated. Explanation: For example: A utility expense recorded was $4500 but the real amount of the untility expense is $3500, then the Accountant could say the Utility Expense is overstated ...
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BetaWhen you make estimates, it can easily lead to overstated or understated revenues. If at any time your staff members start skipping basic precautions, there is also a potential for trouble.
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BetaExamples: Type Effect of not making the adjustment Supplies Adjustment This adjustment is needed because supplies are DE Expenses Understated initially recorded as an asset. As they are used up Net Income Overstated they must be expensed because the cost has expired Assets Overstated Equity Overstated
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BetaAlso, Taxes and Licenses is understated (lower than it should be). The amount should have been recorded under this account but it was not. To correct these errors, we should make an entry to offset the effects. Transportation Expense is overstated therefore we should decrease it; Taxes and Licenses is understated therefore we should increase it.
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BetaAs well, consider the following year. The opening inventory on January 1, 2020, would have also been understated, which would have resulted in an understatement of cost of goods sold for 2020. Thus, over a two-year period, net income would have been understated by $7,000 in 2019 and overstated by $7,000 in 2020.
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BetaUnderstated vs Overstated accounting is a scenario in which financial records reflect false information. The Primary Purpose of accounting is to record transactions so as to reflect the true and fair picture of profits, assets, debts, and capital. However, the terms Overstatement and Understatement mean defeating the objectives of record keeping.
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