Question

List six transactions/activities that increase or reduce equity, and give a 1-2 sentence explanation of how/why it changes equity for each example.

Answer 1

• Equity will change is any item that it contains changes. Items included in Equity are:

Net Income, Net Loss

Dividends

Drawings/Withdrawals

Dividends

• Answer

Transaction #	Transaction	How it changes Equity
#1	Sales revenue earned	This will increase Equity, as Revenue increases Net Income which in turn increases Equity.
#2	Rent expenses paid	This will decrease Equity as Expenses reduces Net Income which inturn wil reduce Equity.
#3	Salaries expense paid	This will decrease Equity as Expenses reduces Net Income which in turn will reduce Equity.
#4	Drawings and Withdrawals by the businessman	This will decrease Equity because the amount gets deducted from total Capital/Equity.
#5	Dividend paid to Owner	This will decrease Equity because Dividend reduces Retained earnings, which inturn will decrease Equity.
#6	Treasury Stock purchased	This will decrease Equity because the amount gets deducted from total Capital/Equity.
#7	Depreciation expenses charged	This will decrease Equity as Expenses reduces Net Income which inturn wil reduce Equity.
#8	Interest revenue earned	This will increase Equity, as Revenue increases Net Income which in turn increases Equity.