Equity in a business increases as a result of which of the following?
A) Payments of cash to the owners.
B) Losses from unprofitable operation of the business.
C) Earnings from profitable operation of the business.
D) Borrowing from a commercial bank.

Question

Quizplus · Accepted Answer

Equity in a business is the residual interest in the assets of a business after liabilities are deducted. It increases as a result of earnings from profitable operation which increase the business's assets. Payments of cash to owners decreases equity and losses from unprofitable operation also decrease equity. Borrowing from a commercial bank results in an increase in liabilities and therefore does not increase equity.

Equity in a Business Increases as a Result of Which