Which Of The Following Statements About Revenues Is Correct?

The correction option of this multiple choice question MCQ is (B), as Revenues are positive for the business means there is cash inflows for the business when goods or services sold for cash or when sales on account is made and the business earned the revenue by providing goods or delivered services to customers / clients. Due to increase in sales, the net income or net profit increases which ultimately increase the Equity Account. Equity is recorded on the right side of the Accounting Equation so sales is also added to equity on the right side of the accounting equation. Increase in revenue is recorded on the right side or credit side of a revenue t-account. Increase in revenue account is credited and other account (Cash or Accounts Receivable) is debited according to the Rules of Debit And Credit.

For example, if a sole proprietor earned revenue of $1,000 for cash, then revenue account for the business increases and as a result the equity account also increased by $1,000 as increase in revenue by $1,000 causes net income to increase by $1,000 which ultimately causes equity account to increase by $1,000.

The option A is incorrect as these revenues are increased on the left side of the accounting equation and not on the right side or on the liabilities & equity side.

The option C is also a wrong choice here as revenue accounts cause equity account to increase and not to decrease. However, the Expense Accounts cause equity account to decrease and these expenses are increased on the left side of the accounting equation.

The option D is also incorrect choice of this mcq, as revenues are not reported on the left side of the accounting equation. But, in fact, these are reported on the right side of the accounting equation.