Let's illustrate this with an example. Assume that you own a sole proprietorship and you provided a service to a customer. One of your business assets (cash or accounts receivable) increased and your liabilities were not involved. Therefore, your business liabilities will remain the same and your equity in the business will increase.
Accountants prepare an income statement or P&L to report the revenues and expenses, but the ultimate effect is that the business assets and owner's equity will increase when there is a profit or net income.
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