BACHELOR OF BUSINESS ADMINISTRATION

Detailed explanation-1: -If a company’s revenues are higher than its expenses, it will cause an increase in owners’ equity. Excess of revenue over its expenses would result in a net income. Net income is closed to the retained earnings account as part of the closing process. Therefore it will cause an increase in the retained earnings account.

Detailed explanation-2: -Effect of Revenue on the Balance Sheet Generally, when a corporation earns revenue there is an increase in current assets (cash or accounts receivable) and an increase in the retained earnings component of stockholders’ equity .

Detailed explanation-3: -An owner’s equity in a business rises when that business earns a profit and falls when the company suffers a loss. Profit and loss are directly linked to the amount of money the company is spending to run its business–its operating expenses. So changes in operating expenses naturally affect owner’s equity.

Detailed explanation-4: -In essence, increases in revenue and gains as reported on the income statement cause stockholders’ equity to increase on the balance sheet. In addition, increases in expenses and losses as reported on the income statement cause stockholders’ equity to decrease on the income statement.

Detailed explanation-5: -Owner’s equity will increase if you have revenues and gains. Owner’s equity decreases if you have expenses and losses. If your liabilities become greater than your assets, you will have a negative owner’s equity.