Ans.: There are two items effect owners equity 1) Revenue 2) Expense.
1) Revenue: Revenue is the inflow of assets arising out of sale of commodities services.
2) Expenses: Cost of goods sold, salary, house rent etc. expense results in the decrees of assets and increase of assets and increase of liabilities.
If each expense and revenue directly change the owner’s equity i.e. increases or decreases, it becomes difficult to known the read position of owner’s equity and sources of expense and revenue. Because revenue and expense are directly adjusted with capital, many information relating to this do not exit. That is whey showing revenue and expense in separate accounts the net results of this are adjusted with capital.
