What is the net effect on owner's equity from these two sales?

What is the net effect on owner's equity from these two sales?

• A. Decreases
• B. Increases by $300
• C. Increases by $500
• D. Increases by $800

Answer: (D)

Revenue from sales increases owner's equity because it boosts net income, which in turn raises retained earnings, a primary part of owner's equity. If the two sales total 800, then revenue increases by 800. With no expenses or withdrawals mentioned to offset it, net income rises by 800 and retained earnings grow by that same amount, so the net effect on owner's equity is an increase of 800. The asset side would reflect 800 more cash or accounts receivable, but the question focuses on the equity change, which is the 800 increase.

Revenue from sales increases owner's equity because it boosts net income, which in turn raises retained earnings, a primary part of owner's equity. If the two sales total 800, then revenue increases by 800. With no expenses or withdrawals mentioned to offset it, net income rises by 800 and retained earnings grow by that same amount, so the net effect on owner's equity is an increase of 800. The asset side would reflect 800 more cash or accounts receivable, but the question focuses on the equity change, which is the 800 increase.