Question

Impact in the accounting equation Received monthly utility bill to be paid at later time

Answer 1

Answer:

Receiving utility bill of the month and it is not paid now, but later.

(utilities expense = electricity, telephone charges, water bill, gas etc..)

Amount of the bill should be recognised as utility expense for the month as it has incurred for the current month. And a liability has created since the bill is not paid during the month. The liability can be termed as "Utilities payable"

The journal entry will be:

	Debit	Creit
Utilities expense	xxx
Utilities payable		xxx

Effect on accounting equation:

ASSETS = LIABILITIES +SHAREHOLDERS' EQUITY

1. This transaction has no effect on assets as no asset increased nor decreased.

2. This transaction will increase the Liability(utilities payable) .

3. This transaction decrease theShareholders' Equity

Let me explain, how;

Shareholders' Equity = Common stock + Retained earnings.

Common stock is no way affected here. But retained earnings will increase by every revenue and decrease by every expense. Here we incurred an expense ; "utilities expense" . So, retained earnings will decrease that amount. And consequently,Shareholders' Equity also decreases as retained earnings is a part of it.

LET'S RECAPITULATE IN A SIMPLE TABLE:

ASSETS	=	LIABILITIES	+	SHAREHOLDERS' EQUITY
				COMMON STOCK	RETAINED EARNINGS
No effect	=	increase by the liabilty "utilities payable"	+		Decrease by the expense "utilities expense"

So, liabilities are increased and shareholders's equity is decreased by the same amount. And assets are not affected.