Chapter 5-3

Equity Section of the

Balance Sheet

Critical Thinking

What is the impact of the Income Statement on the Balance Sheet?

What does Net Income change capital?

How does a Net Loss change capital?

Formula to Update Capital

___________________

+ __________________________

– _________________

= ________________________

The Net Income (Net Loss) figure will come from the Income Statement therefore the ________________________________________________

A Classified Balance Sheet

Owner’s Equity (OE) on the B/S

Now we need to include net income (loss) and drawings into the Balance Sheet. Ex. Pg 155 :

Owner’s Equity – E. Boa Capital

Balance January 1 $21,878

Net Income $8,209

Drawings 3,950

Increase in Capital 4,259

Balance December 31 $26,137

Example 1

T. Smith, Capital

Capital Balance, January 1st 2015: $20,376.64Net Income for the year: $10,594.03Drawings for the year: $15,376.70

T. Smith, Capital      

Balance, January 1st 2015 20,376.64  

Net Income  

Drawings    

Decrease in Capital -  

Balance, December 31st 2015     $ -

Example 2

S. Brown, Capital

Capital Balance, July 1 2015: $31,216.40Net Loss for the year: $5,147.62Drawings for the year: $19,400.00

T. Smith, Capital      

Balance, July 1st 2015 31,216.40  

Net Loss  

Drawings    

Decrease in Capital -  

Balance, December 31st 2015     $ -

Example 3S. D’Angio, Capital

Capital Balance, January1 2015: $47,005.12

Additional Investments: 30,000.00Net Income for the year: $23,604.89Drawings for the year: $20,000.00

S. D’Angio, Capital      

Balance, January 1st 2015 31,216.40  

Additional Investment

Net Income  

Drawings    

Decrease in Capital -  

Balance, December 31st 2015     $ -