Which statement about revenues is true?

• A. They are the difference between cash receipts and cash payments.
• B. They are the same as cash receipts.
• C. They decrease the owner's equity.
• D. They increase the owner's equity when earned.

Answer: (D)

Revenues increase owners’ equity when earned because they add to net income, which raises retained earnings and thus overall equity. Under accrual accounting, revenue is recognized when the service or good is delivered, not only when cash is received, so equity can rise even if cash hasn’t been collected yet.

The other ideas don’t fit: the difference between cash receipts and cash payments is a measure of net cash flow, not revenue; revenue is not the same as cash receipts and can be earned without cash being received immediately (accounts receivable); and revenues do not decrease owners’ equity—they increase it.