Which Of The Following Accounts Directly Impact Equity?

The correct options are B, C, E and F, as when common stock issued or sold to shareholders, it will increase the Equity directly as ownership of shares in the company’s equity increases. The common shareholders also have right to vote in corporate matters such as vote to elect board of directors, passed resolution in solving business matters, etc. Revenues also increase equity directly as increase in revenues increase profit for the business which surely increases equity of the company as profit is added to equity. Business needs revenues to earn profit which is the result of profitable activities of the owners of the business. On the other hand, the Expenses directly decrease the equity as these are occurred to earn revenue but these when occurred decreased the net profit and as a result equity goes down. If expenses incurred are successful in earning revenues for the business, then the revenues will certainly increase the equity on the balance sheet. Dividends also directly impact the equity account and decrease it as dividends are paid out of profits retained in the business (retained earnings) which decreased the retained earnings and ultimately decrease in profits decrease the equity account.

The option A is incorrect choice for this multiple choice question (mcq), as Assets indirectly impact equity. For example, expenses paid by cash or cash invested into the business indirectly affects the equity as decrease or increase in assets are not added or deducted from equity account.

The option D is also incorrect choice, as Liabilities do not affect equity directly but indirectly as increase or decrease in liabilities are not deducted or added to equity account. For example, purchased goods on account, paid to suppliers for goods purchased on account, taking bank loan, unearned revenue due to payment received in advance against the services not yet rendered by the company, etc., is not deducted or added to equity.