The payment of $15,000 for expenses was recorded by Spears Co. as an increase in cash of $15,000 and a decrease in retained earnings of $15,000. What is the effect of this error on the accounting equation?
A) Total assets will exceed total liabilities and stockholders' equity by $15,000.
B) Total assets will exceed total liabilities and stockholders' equity by $30,000.
C) Total assets will be less than total liabilities and stockholders' equity by $30,000.
D) The error will not affect the accounting equation.

Question

Quizplus · Accepted Answer

The error incorrectly increases cash (an asset) by $15,000 instead of decreasing it, while also decreasing retained earnings (part of stockholders' equity) by $15,000. This results in total assets being overstated by $15,000 and stockholders' equity being understated by $15,000, causing a $30,000 discrepancy.

The Payment of $15,000 for Expenses Was Recorded by Spears