what does "interest due but not paid" have effect on the accounting equation?
As per the Accrual Concept, Interest due but not paid is an expense that will be deducted from 'Capital' because the liability for the payment of interest has been established. On the contrary, it will be added to the 'Liabilities'. To understand this concept, let us consider an example of interest on Loan that a firm has taken from a bank. The firm needs to pay interest at the end of every month, say 30th of every month. But in the month of March, due to some financial crisis, the firm failed to pay the interest on the loan. On March 30th, the interest became due (that is to be payable) but was not paid. Thus, the firm has to pay this amount that is why, it is a liability for the firm. Therefore, while preparing the Accounting Equation, interest due but not paid will be deducted from the Capital and will be added to the Liabilities.