What would be the effect if an organization paid one of its liabilities twice during the year in error?

When a liability is paid, the correct journal entry is a debit to the liability account (e.g., Accounts Payable) and a credit to Cash. This reduces both liabilities and assets. If this payment is made a second time in error, the same entry would be made again. This second entry further reduces the Cash account, causing total assets to be understated. It also creates an erroneous second debit to the liability account. This would cause the liability account's balance to be understated (potentially creating an abnormal debit balance). The transaction does not involve revenue or expense accounts, so net income and owner's equity are unaffected.

A. Owner's equity would be unaffected because the payment of a pre-existing liability does not impact revenue or expense accounts, and therefore does not affect net income.

B. Assets are understated because cash, an asset, was erroneously paid out a second time.

D. Liabilities are understated, not overstated, because the liability account was debited a second time in error. Net income and owner's equity are unaffected.

1. Weygandt

J. J.

Kimmel

P. D.

& Kieso

D. E. (2021). Financial Accounting (11th ed.). Wiley. In Chapter 9

"Current Liabilities

" the standard entry to settle a liability is shown as a debit to Accounts Payable and a credit to Cash. A duplicate entry would incorrectly repeat this process

understating both accounts on the balance sheet.

2. OpenStax. (2019). Principles of Accounting

Volume 1: Financial Accounting. Rice University. Section 11.2

"Account for and Present Current Liabilities." This section explains that paying a current liability decreases both cash (an asset) and the liability itself. An erroneous duplicate payment would cause a second

incorrect reduction in both of these accounts

leading to their understatement.

3. The Institute of Internal Auditors (IIA). (2017). CIA Exam Syllabus – Part 3: Business Acumen. Domain II: Financial Management

Section A

"Financial accounting and finance." This syllabus requires an understanding of how transactions affect the financial statements. The error described directly tests the knowledge of the balance sheet equation (Assets = Liabilities + Equity) and how a duplicate payment transaction would incorrectly decrease the asset and liability sides without affecting equity.