State BPA Fundamental Accounting Practice Exam

An increase in equity resulting from the sale of goods or services is called?

1. Revenue

2. Expense

3. Liability

4. Asset

The correct answer is: Revenue

An increase in equity resulting from the sale of goods or services is defined as revenue. Revenue represents the money that a business earns through its primary operations, such as selling products or providing services. It is essential for assessing a company’s financial performance and is recorded on the income statement. When a sale occurs, it not only increases the company's cash inflow but also contributes to retained earnings, which is part of the equity section on the balance sheet. This distinguishes revenue from other terms like expenses, which represent costs incurred in the process of generating revenue; liabilities, which denote obligations or debts that the business owes to others; and assets, which are resources owned by the company that provide future economic benefits. In this context, revenue is specifically linked to the operational activities that boost the company's equity through sales activities.