Revenues A) Decrease Assets. | Multiple Choice Question

The correct answer is (D). Increase Owner’s Equity, as Revenues are greater than Expenses to earn profits, so it increases Owner’s Equity for the business.

Example: Fees Earned $4000 during the period. What is the effect of this transaction on Owner's Equity?

When the company rendered services to clients and received fees of $4000, then we debit cash account and credit fees earned account. The owner's equity is increased by $4000 as revenues have positive impacts on owner's equity.

If revenues are less than expenses, then the business suffered a loss and this has adverse impact on owner's equity as loss are deducted from owner's equity. On the other hand, if the revenues are more than expenses, the business earned profits during the accounting period and such profit for the period is added to the owner's equity.

So, revenues are positively related with owner's equity i.e., the more revenues earned by the business during the accounting period, the more the owner's equity will be.