Which of the following statements is correct?
A) Equity is defined as 'the residual interest in the assets of the entity after deducting all its expenses'.
B) Equity is increased by profit and owner contributions.
C) Equity is decreased by an entity's income.
D) Equity cannot be sub-classified in the statement of financial position.

Question

Quizplus · Accepted Answer

Equity is defined as the residual interest in the assets of the entity after deducting all its liabilities. Equity can be increased by profit (when the income exceeds the expenses) and by owner contributions (such as investments). It can decrease if the expenses exceed the income, causing a loss. However, income does not directly affect equity. Equity can also be sub-classified in the statement of financial position, with categories such as share capital, retained earnings, and other reserves.

Which of the Following Statements Is Correct