Question

How does receiving a bill to be paid next month for services received affect the accounting equation? a.liabilities increase; owner's equity increases b.assets decrease; owner's equity decreases c.liabilities increase; owner's equity decreases d.assets increase; liabilities increase

Answer 1

Answer:

c.liabilities increase; owner's equity decreases

Explanation:

Accounting Equation is represented by the following formula:

Assets = Liabilities + Owner's Equity

When a bill to be paid next month is received in the current month, it establishes a liability, and expense account is debited whereas a due liability account is credited.

This would reduce the profits which would in turn reduce the owner's equity and at the same time increase the liabilities amount.