Multiple Choice
Which of the following is the correct formula to calculate net sales on the income statement?
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4. Merchandising Operations
Net Sales
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22. Which of the following best describes a decrease in owner's equity resulting from the operation of a business?
A
A revenue
B
A liability
C
A capital contribution
D
An expense
Verified step by step guidance1
Understand the components of owner's equity: Owner's equity represents the owner's residual interest in the business after liabilities are subtracted from assets. It is affected by revenues, expenses, contributions, and withdrawals.
Recognize that revenues increase owner's equity: When a business earns revenue, it increases the net income, which in turn increases owner's equity.
Understand the impact of expenses: Expenses are costs incurred during the operation of a business. They reduce net income, which directly decreases owner's equity.
Differentiate between capital contributions and liabilities: Capital contributions are funds or assets provided by the owner, which increase owner's equity. Liabilities, on the other hand, are obligations the business owes to external parties and do not directly affect owner's equity unless settled.
Conclude that a decrease in owner's equity resulting from the operation of a business is best described as an expense, as it directly reduces net income and, consequently, owner's equity.
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