Tennis Shoe Warehouse operates in a state with a 6.5% sales tax. For convenience, Tennis Shoe Warehouse credits Sales Revenue for the total amount (selling price plus sales tax) collected from each customer. If Tennis Shoe Warehouse fails to make an adjustment for sales taxes,

A.

net income will be understated and liabilities will be overstated.

B.

net income will be overstated and liabilities will be overstated.

C.

net income will be overstated and liabilities will be understated.

D.

net income will be understated and liabilities will be understated.