Which of the following does not affect equity? Sales. Revaluation reserve. Correct Answer Cash at bank. You Answered Expenses.
Question
Which of the following does not affect equity? Sales. Revaluation reserve. Correct Answer Cash at bank. You Answered Expenses.
Solution
The question is asking which of the given options does not affect equity. The options are Sales, Revaluation reserve, Cash at bank, and Expenses.
Step 1: Understanding the concept of equity Equity in a business context refers to the ownership interest in the company, represented by the company's assets minus its liabilities.
Step 2: Evaluating each option
- Sales: Sales affect equity because they increase the company's assets, and therefore, increase equity.
- Revaluation reserve: This is a part of the company's equity. When assets are revalued, the increase or decrease in value is recorded in the revaluation reserve, thus affecting equity.
- Cash at bank: This is an asset of the company. However, the mere presence of cash in the bank does not affect equity. It is what the company does with the cash that can affect equity. For example, if the cash is used to pay off liabilities, equity will increase. If the cash is used to purchase more assets, equity remains the same. Therefore, simply having cash at bank does not affect equity.
- Expenses: Expenses decrease the company's assets, and therefore, decrease equity.
Step 3: Conclusion Based on the above evaluation, the correct answer is Cash at bank. This is because simply having cash at bank does not affect equity. It is what the company does with the cash that can affect equity.
Similar Questions
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