The Payment of $20,000 for Expenses Was Incorrectly Recorded by Elite

Multiple Choice

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 exceed total liabilities and stockholders' equity by $40,000.
C) Total assets will be less than total liabilities and stockholders' equity by $40,000.
D) The error will not affect the accounting equation.