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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.
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)
Option B is correct as no effect will be on P&L Account.
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.
Decrease in cash and increase in receivables. There is also other option you can recall or cancel a duplicate payment.
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.
Assets, net income, and owners equity will be uneffected. You have a receivable against that supplier.
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
Liabilities - overstated
Cash - understated
