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What is the effect of this error on the accounting equation

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Question - The payment of $20,000 for expenses was incorrectly recorded by Elite Co. as an increase in cash of $20,000 and a decrease in retained earnings of $20,000. What is the effect of this error on the accounting equation?

a. Total assets will exceed total liabilities and stockholders' equity by $20,000.

b. Total assets will be less than total liabilities and stockholders' equity by $40,000.

c. Total assets will exceed total liabilities and stockholders' equity by $40,000.

d. The error will not affect the accounting equation.

Reference no: EM133106798

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