An increase in proprietorship as a result of a business transaction is considered

• A. Income
• B. Expense
• C. Liability
• D. Asset

Answer: (A)

In accounting, owner’s equity (proprietorship) grows when the business earns money from its operations. When you provide a service or make a sale, revenue is generated, which increases net income and, in turn, increases the proprietor’s equity. That direct rise in earnings is what we call income.

Expenses, on the other hand, reduce the proprietor’s equity because they represent costs of doing business. Liabilities are obligations the business owes, which don’t increase equity on their own. Assets are resources the business owns; an increase in assets doesn’t automatically mean the owner’s equity has grown unless it comes from revenue or equity contributions. Therefore, the increase in proprietorship from a business transaction is best described as income.