Question

A company received a utility bill of $650 but did not pay it. Indicate the amount of increases and decreases in the accounting equation. (Decreases to account classifications should be entered as a negative.)

Answer 1

Based on the fact that the utility bill was received but not paid, the increases and decreases are:

• Assets - $0
• Liabilities - +650
• Equity - (-650)

What is the effect on the accounting equation?

Liabilities will increase by the utility bill of $650 because the company owes this amount.

Equity will decrease by $650 because this expense will come out of revenue. The total assets will remain unchanged as a result of equity ad liabilities canceling each other out.

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