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If a company pays one of its liabilities twice during the year, in error. What are the effects of this mistake?

A . Assets and net income and owners' equity will be understated, and liabilities are overstated.

B. Assets and liabilities will be understated.

C. Assets, net income, and owners' equity will be unaffected.

D. Assets, liabilities, and owners' equity will be understated.

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Question added by Deleted user
Date Posted: 2016/08/27
Aslam Khan
by Aslam Khan , Senior Accounts Officer , Pakistan Software Export Board

Option B is right answer, it reflects the decline in liabilities and current assets. 

Upon payment this amount will be debited  and credited cash/bank, (decline in liabilities and current assets)

Haroon Shaukat
by Haroon Shaukat , Chief Accountant , Emeco Tourism LLC

Option B is correct as no effect will be on P&L Account.

Jafar  Ali Wahed Mohammed
by Jafar Ali Wahed Mohammed , Finance Manager , Al Jubiri Group

B. Assets and Liabilities will be understated becuase, 

    1. Due to double payment of the liability, the Bank Balance has flown out. hence, the Bank Balance is decreased

    2. The Liability Ledger will be Debited twice which directly decreases the Total value of liabilities. 

 

Coming to owners equity, it remains unaffected due to 

1) The Payment is not treated as an expenditure in the Profit & Loss Account. 

2) Still there can be claim from the Payee which can recovered in a short term. The same, consequent upon identification, can be classifed as a Current Asset if there is reasonable assurance of recovery. 

 

Tomasz L
by Tomasz L , Reporting Specialist , Outworking

Decrease in cash and increase in receivables. There is also other option you can recall or cancel a duplicate payment.

Qaisar Nawaz
by Qaisar Nawaz , Auditor , Reliance Consultatin

The correct answer is option (C). As the over payment of liability will reduce the company asset (Example cash at bank) and as a liability will be paid two times so will cause the understatement of liability too.

Christoph Platz
by Christoph Platz , CEO , Platz & von Oertzen GmbH

Assets, net income, and owners equity will be uneffected. You have a receivable against that supplier.

Deleted user
by Deleted user

Assets will be understated as the cash is paid twice and the liabilities will be overstated and net income will reduce due to extra expense

 

John Carlo Rabang
by John Carlo Rabang , Payroll Accountant , Chalhoub Group

Liabilities - overstated

Cash - understated