Question

Explain how the following items affect equity: revenue, expenses, investments by owners, and distributions to owners.

Explain how the following items affect equity: revenue, expenses, investments by owners, and distributions to owners.

Homework Answers

Answer #1

Answer:

  1. Revenues - It increases equity. Equity refers to the owners' amounts invested in the business. Revenues increase equity as revenues increases the profits which are a part of the equity.
  2. Expenses - These decreases equity. Expenses decrease equity as expenses decreases the profits which are a part of the equity.
  3. Investment by owners - It increases equity. The investment by owners become part of the equity and added to the overall total balance, thereby increasing the total equity.
  4. Distributions to owners - It decreases equity. Amounts distributed to owners gets reduced from the total equity balance and therefore the total equity is reduced by that amount.

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