Does a loss increase or decrease the equity of the owner?

Question: Does a loss increase or decrease the equity of the owner?

A loss decreases the equity of the owner. Equity represents the residual interest in the assets of a business after deducting liabilities, and it includes the owner's initial investment in the business plus any profits or losses accumulated over time. A loss reduces the amount of profits retained in the business and therefore decreases the owner's equity. Conversely, a profit increases the owner's equity by adding to the amount of retained earnings.

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