A Revenue Generally A. Increases Assets And Liabilities. B. Increases Assets And Stockholders' Equity... | Multiple Choice Question Answer

A Solution To The MCQ With Brief Explanation With The Help Of An Example

The correct answer is (B). “Increase Assets and Stockholders’ Equity”, as increase in Revenues increase Assets, as there are inflows of assets such as cash, accounts receivable, etc., and also more assets can be purchased by the business, and Stockholders’ Equity, as revenues are greater than expenses to gain profits and inflows of cash or accounts receivable for the business. So, revenues increase stockholders’ equity as well as assets of the business.

Example: Mr. A Sold Goods Worth $5000 For Cash

This is a Sales Transaction, which increased Cash by $5000 and Sales by $5000 also. So, asset (Cash) also increased. So, we debit cash account and credit sales account. The effect of this Transaction on Accounting Equation is shown below:

                  Assets       =          Liabilities      +             Stockholders’ Equity
 
                  +Cash        =                ---             +                       (+Sales)
 
                  +$5000      =                ---            +                        (+$5000)

So, both asset and stockholders’ equity increased by $5000 amount on both sides of accounting equation.