Final answer:
Owner's investments do not decrease owner's equity; rather, they increase it. Withdrawals, expenses, and dividends decrease owner's equity, but investments by the owner raise the company's assets and the owner's interest in those assets.
Step-by-step explanation:
The student asked which of the following does not decrease owner's equity.
Owner's equity is affected by various transactions within a company.
Options (b) owner's withdrawals, (c) expenses, and (d) dividends result in a decrease of owner's equity.
However, option (a) owner's investments actually increases owner's equity.
When an owner invests money into their business, it boosts the company's assets and consequently increases the owner's claim on those assets - this is understood as an increase in owner's equity.
To further understand this concept, consider the following scenarios:
- (b) When an owner makes withdrawals, they are essentially taking funds out of the business for personal use, which reduces the company's assets and thus decreases equity.
- (c) Expenses are costs of operating the business. As expenses are incurred, they reduce net income, and therefore, reduce the owner's equity.
- (d) A dividend is a payment made to shareholders out of a company's profits. While dividends are typically associated with corporations more so than owner's equity in small businesses, they still represent a distribution of earnings that can reduce retained earnings and hence, owner's equity.
- (a) Owner's investments, such as injecting additional funds into the business, contribute to an increase in assets without creating any new liabilities, thus raising the owner's equity.