Question

Equity is increased by: liabilities dividends revenues expenses

Equity is increased by:

liabilities

dividends

revenues

expenses
Business   Accounting   
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Answer #1

Net income=Revenue-Expenses

while

Addition to retained earnings=Net income-Dividends

Ending Equity=Beginning equity balance+Addition to retained earnings(Assuming other things are constant)

Hence higher the revenues;higher would be the net income and higher would be the retained earnings;and hence higher the equity balance.

On the other hand;higher the expenses paid lower would be the net income and lower the retained earnings and hence lower the equity balance.

Also;dividends would reduce the retained earnings and lower the equity balance.

Hence the correct option is Revenues.

NOTE:Liabilities do not form part of equity.

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