Question

Income refers to:

• A. Increase in liabilities
• B. Increase in owner's equity
• C. Decrease in assets
• D. Payment to creditors

Answer 1

Answer:

B. Increase in owner's equity

INCOME

Definition:

Income refers to the increase in the net worth (or owner's equity) of an organization, which may arise from both:

• Business operations (e.g., sales revenue)

• Other sources (e.g., profit on the sale of fixed assets)

• Formula: Income = Profit + Gain

LOSS

Definition:

• A loss occurs when expenses exceed related revenues during a period.

• Effect: Leads to a decrease in owner's equity.

Note:

The term loss can convey two meanings:

• Operational Loss: From regular business activities (e.g., cost of goods sold > sales revenue).

• Non-operational Loss: From other events (eg, loss on sale of assets, natural disasters).