After posting the cleaning service revenue of $250, what is the new equity balance given initial equity is $5,000?

After posting the cleaning service revenue of $250, what is the new equity balance given initial equity is $5,000?

• A. $250
• B. $1,250
• C. $5,250
• D. $5,500

Answer: (C)

Revenue increases owners' equity because it adds to net income, which raises retained earnings and thus the equity portion of the balance sheet. Recording $250 of cleaning service revenue lifts net income by $250, so retained earnings (and total equity) increase by the same amount. Starting with $5,000 in equity, adding $250 yields $5,250. If cash was received or not, the impact on equity remains a $250 rise. Therefore, the new equity balance is $5,250.

Revenue increases owners' equity because it adds to net income, which raises retained earnings and thus the equity portion of the balance sheet. Recording $250 of cleaning service revenue lifts net income by $250, so retained earnings (and total equity) increase by the same amount. Starting with $5,000 in equity, adding $250 yields $5,250. If cash was received or not, the impact on equity remains a $250 rise. Therefore, the new equity balance is $5,250.