What would be the effect if an organization paid one of its liabilities twice during the year, in error?
What would be the effect if an organization paid one of its liabilities twice during the year, in error?
A . Assets, liabilities, and owners’ equity would be understated.
B . Assets, net income, and owners’ equity would be unaffected
C . Assets and liabilities would be understated.
D . Assets, net income, and owners’ equity would be understated, but liabilities would be overstated
Answer: D
Explanation:
If an organization pays one of its liabilities twice, its assets (cash) would be reduced more than necessary. This results in an understatement of net income and owners’ equity because the additional payment is an expense that should not have been recorded. Liabilities would be overstated because the duplicate payment does not reduce the liability correctly.
Reference: "Financial Accounting Principles," which discusses the impact of errors on financial statements.
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