Which of the following items has no effect on equity a. wages accrued b. revenue c. land purchase d. dividends
The correct answer and explanation is:
Correct Answer: c. Land purchase
Explanation (Approx. 300 Words):
Equity in accounting refers to the residual interest in the assets of a business after deducting liabilities. It essentially represents the ownership value held by shareholders or owners of the business. Various transactions can increase or decrease equity, but not all business transactions have a direct impact on it.
Let’s evaluate each option:
a. Wages accrued:
This represents an expense that has been incurred but not yet paid. Expenses reduce net income, which in turn reduces retained earnings, a component of equity.
✅ Effect on equity: Yes, it reduces equity.
b. Revenue:
Revenue increases net income, which contributes to retained earnings. Since retained earnings are a key part of equity, recognizing revenue increases equity.
✅ Effect on equity: Yes, it increases equity.
c. Land purchase:
Purchasing land is a swap between assets—cash decreases, land (a non-current asset) increases. Since it does not involve income, expenses, or distributions, equity remains unchanged.
❌ Effect on equity: No, it has no effect on equity.
d. Dividends:
Dividends represent a distribution of profits to shareholders. Paying dividends reduces retained earnings, which reduces equity.
✅ Effect on equity: Yes, it decreases equity.
Conclusion:
Among the options given, only the purchase of land does not affect equity. It is a balance sheet transaction that changes the composition of assets but not the total amount of equity.
Hence, the correct answer is:
👉 c. Land purchase.