Question

What effect do revenues have on accounts?

A. Increasing expenses
B. Decreasing liabilities
C. Decreasing owner's equity
D. Increasing owner's equity

Answer 1

Revenues have the effect of D. Increasing owner's equity, as they contribute to a company's net income, and that increase in net income raises the owner's equity.

Step-by-step explanation:

The effect revenues have on accounts is D. Increasing owner's equity. Revenue is the income generated from normal business operations and includes discounts and deductions for returned merchandise. It is a crucial component of a company's profit or loss (P&L) report and is considered the top line of the income statement.

When revenues increase, they directly impact the equity of the owner or shareholders because they contribute to the net income of the company. An increase in net income raises the owner's equity, as it is basically the residual equity that remains after deducting liabilities from assets.