Which statement is true about the impact of revenue from sales on the accounting equation?

Which statement is true about the impact of revenue from sales on the accounting equation?

• A. Increases both assets and owner's equity
• B. Increases liabilities
• C. Decreases assets
• D. Has no effect on the accounting equation

Answer: (A)

Revenue from sales affects the accounting equation by increasing both sides: assets and owners' equity. When a sale happens, the business earns revenue, which boosts net income. That higher net income increases the owners' equity portion of the equation (through retained earnings). On the asset side, the actual inflow of value raises assets—cash if paid immediately, or accounts receivable if paid later. Since assets rise and equity rises by the same amount through retained earnings, the equation stays balanced. The other statements don’t fit because revenue doesn’t increase liabilities, it doesn’t decrease assets, and it does affect the equation by increasing both assets and equity.

Revenue from sales affects the accounting equation by increasing both sides: assets and owners' equity. When a sale happens, the business earns revenue, which boosts net income. That higher net income increases the owners' equity portion of the equation (through retained earnings). On the asset side, the actual inflow of value raises assets—cash if paid immediately, or accounts receivable if paid later. Since assets rise and equity rises by the same amount through retained earnings, the equation stays balanced. The other statements don’t fit because revenue doesn’t increase liabilities, it doesn’t decrease assets, and it does affect the equation by increasing both assets and equity.