Which scenario would increase owner's equity?

Which scenario would increase owner's equity?

• A. Net income is earned (revenue exceeds expenses).
• B. The owner contributes additional capital.
• C. Both of the above.
• D. None of the above.

Answer: (C)

Owner's equity grows when the business earns profits or when the owner adds more capital. Earning net income increases equity because profits lift retained earnings, which are part of owner's equity. At the same time, when the owner contributes additional capital, assets rise and the owner’s stake in the business grows, increasing equity directly. Since either event boosts owner's equity, the scenario that includes both events correctly indicates an increase in owner's equity.

Owner's equity grows when the business earns profits or when the owner adds more capital. Earning net income increases equity because profits lift retained earnings, which are part of owner's equity. At the same time, when the owner contributes additional capital, assets rise and the owner’s stake in the business grows, increasing equity directly. Since either event boosts owner's equity, the scenario that includes both events correctly indicates an increase in owner's equity.