What financial activity does an increase in the equity account suggest?

An increase in the equity account typically indicates that the company is either generating profits or receiving investments from its owners or shareholders. This is because equity represents the residual interest in the assets of the business after deducting liabilities. When a business generates profit, it contributes to retained earnings, which is part of equity. Similarly, when owners invest additional capital into the business, this also increases the equity account.

In contrast, a decrease in liabilities would not necessarily reflect an increase in equity, as the two are not directly correlated in that way. A decrease in assets suggests a different financial scenario, where the overall value of the company is shrinking. An expense incurred would decrease net income, which would consequently reduce equity rather than increase it. Therefore, the correct interpretation of increased equity is linked primarily to the generation of profit or new investments.