Which action increases owner's equity?

Which action increases owner's equity?

• A. Receiving cash from a client for services
• B. Paying a supplier
• C. Owner withdrawal
• D. Purchasing equipment with cash

Answer: (A)

Revenue from performing services increases owner's equity because it boosts net income, and net income adds to retained earnings, a component of owner's equity. When you receive cash from a client for services, you record revenue and an asset increase (cash). The double‑entry effect is: cash up and revenue up, which raises equity by the amount of the revenue. In contrast, paying a supplier reduces cash (and, if it’s for a expense, reduces net income and equity), while purchasing equipment with cash trades one asset for another and leaves equity unchanged. So this action increases owner's equity.

Revenue from performing services increases owner's equity because it boosts net income, and net income adds to retained earnings, a component of owner's equity. When you receive cash from a client for services, you record revenue and an asset increase (cash). The double‑entry effect is: cash up and revenue up, which raises equity by the amount of the revenue. In contrast, paying a supplier reduces cash (and, if it’s for a expense, reduces net income and equity), while purchasing equipment with cash trades one asset for another and leaves equity unchanged. So this action increases owner's equity.