Question

X Company's accountant made adjusting entries at the end of the period for the following reasons:

• $2,869 of unpaid interest on a bank loan
• $581 of wages that were earned by employees but not paid
• $1,470 of insurance that expired

What was the effect of these entries on total equities?

Answer 1

Unpaid interest will effect outside liabilities and retained earnings (effects total equity).

Here retained earning decreases by $ 2,869 and outside liabilities (interest payable) will increase by $ 2869.

> Wages also effect outside liabilities and retained earnings (effects total equity).

Here retained earnings decrease by $581and outside liability (wages payable) increase by $581.

> Insurance effects will effect assets and retained earnings (effects total equity).

Here Asset will decrease by $1470 and Retained earnings will decrease by $1470

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