A business receives a bill for services rendered from one of its suppliers.The business will pay the supplier next month.When the business receives the bill from its supplier,how does this affect the accounting equation?

Question

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When the business receives the bill, it creates a liability as the supplier has provided a service for which the business owes payment. Therefore, liabilities increase. On the other hand, there is no increase in assets or owners' equity as the payment has not been made yet. Hence, the accounting equation is affected by an increase in liabilities and a decrease in owners' equity.

A Business Receives a Bill for Services Rendered from One