Register now or log in to join your professional community.
Net loss will effect Owners Equity to decrease .
Net income increases the Equity and Revenue can increase or decrease te equity share depending on the Expenditure regarding that revenue.
Hence NET Loss Is Correct
As you are familiar net income/net loss arises when an entity's revenue for specific period is deducted from the expense of the same period. Thus, if the revenue is greater than the expense the result is net income and it increases the owner's equity. on the other hand if the expense is greater than the revenue then the result is net loss and it decreases the owner's equity. in short the net income increases the capital or owners' equity and net loss decreases the owner's equity as you can see from the following formula
Ending capital = beginning capital plus additional investment Plus/minus net income/net loss - withdrawal.
So choice number2 is the correct answer for your question.
The answer is option2 - Net Loss. A net profit will increase the owner's equity and a net loss will decrease the owner's equity. thx..
Net loss would result in decrease of owners equity
