[amp_mcq option1=”Increase of assets and increase in capital” option2=”Decrease in assets and increase in capital” option3=”Increase in assets and decrease in liability” option4=”Decrease in assets and increase in liability” correct=”option1″]
The correct answer is: A. Increase of assets and increase in capital
When a company earns income, it increases its assets by the amount of the income earned. This is because income is a form of revenue, which is an asset. The company also increases its capital by the amount of the income earned. This is because capital is the owner’s equity in the company, and income increases the owner’s equity.
Option B is incorrect because it states that income earned results in a decrease in assets. This is not true, as income earned increases assets.
Option C is incorrect because it states that income earned results in a decrease in liability. This is not true, as income earned does not affect liabilities.
Option D is incorrect because it states that income earned results in an increase in liability. This is not true, as income earned does not affect liabilities.
In conclusion, the correct answer is: A. Increase of assets and increase in capital.