Final answer:
Recognizing something as revenue instead of as a liability positively impacts net income on a firm's financial statements, which in the case of a bank's T-account increases net worth. The correct answer is (c) it overstates net income.
Step-by-step explanation:
Recognizing something as a revenue instead of as a liability has a positive effect on the reported financial statements. Among the provided options, it is correct that recognizing something as revenue will overstate net income (c) because revenues increase net income on the income statement. It does not understate or overstate liabilities (a and b); those are not directly affected by revenue recognition. Also, while initially it may seem like recognizing revenue could overstate assets (d), the actual effect on assets depends on the transaction that generated the revenue. Therefore, the most accurate choice given the options provided is that it overstates net income.
In the context of a bank's T-account, recognizing revenue accurately is crucial. The T-account separates the assets of a firm, on the left, from its liabilities and net worth, on the right. All firms use T-accounts to reflect their financial position with assets on one side and liabilities plus net worth on the other, ensuring the two sides balance. Revenue increases net worth (equity) since it is an influx of assets without an immediate corresponding liability.