Which statement best differentiates revenue from gains?

• A. Revenue and gains increase equity; expenses and losses decrease equity; gains are from incidental transactions, revenue from core operations.
• B. Revenue increases equity, gains decrease equity.
• C. Revenue and gains increase equity; expenses and losses decrease equity; gains are from incidental transactions, revenue from core operations.
• D. Revenue decreases equity.

Answer: (C)

The key idea is distinguishing where the income comes from. Revenue is the income a company earns from its core, ongoing operations—selling goods or providing services. Gains, by contrast, come from incidental or peripheral transactions that are not part of the ordinary business activities, such as selling an asset for more than its book value. Both revenue and gains increase equity because they boost net income, which, when closed to retained earnings, raises shareholders’ equity. Expenses and losses reduce equity for the opposite reason, by lowering net income. So the best statement is that revenue and gains increase equity, expenses and losses decrease equity, with gains arising from incidental transactions and revenue from core operations.