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Owner’s Equity and the Report Form Balance Sheet

Owner’s Equity and the Report Form Balance Sheet. BAF3M. Owner’s Equity accounts. Owner’s capital and Drawings accounts appear in the Owner’s Equity section Capital account DECREASES with Drawings. The Net Income/Loss Effect on Owner’s Equity.

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Owner’s Equity and the Report Form Balance Sheet

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  1. Owner’s Equity and the Report Form Balance Sheet BAF3M

  2. Owner’s Equity accounts • Owner’s capital and Drawings accounts appear in the Owner’s Equity section • Capital account DECREASES with Drawings

  3. The Net Income/Loss Effect on Owner’s Equity • Capital INCREASES when the business records a Net INCOME • Capital DECREASES when the business records a Net LOSS

  4. The NEW Owner’s Equity Owner’s Equity J. Zee, Capital October 1 $20,000 Add: Net Income for October $3,000 Less: J. Zee, Drawings 1,000 Increase in Capital 2,000 J. Zee, Capital October 31 $22,000

  5. The NEW Owner’s Equity Owner’s Equity J. Zee, Capital November 1 $22,000 Add: Net Income for November $1,000 Less: J. Zee, Drawings 1,500 Decrease in Capital 500 J. Zee, Capital November 31 $21,500

  6. The NEW Owner’s Equity Owner’s Equity J. Zee, Capital December 1 $21,500 Less: Net Loss for December $500 Less: J. Zee, Drawings 800 Decrease in Capital 1,300 J. Zee, Capital December 31 $20,200

  7. The NEW Balance Sheet • ACCOUNT FORM • Balance Sheet with a Left side and Right side • REPORT FORM • Balance Sheet is written vertically instead of left side and right side • The Fundamental Accounting Equation still applies! • A = L + OE

  8. Report Form Balance Sheet • See Example on pgs. 87-89 of text • Since Net Income/Loss appears on the Balance Sheet, the Income Statement needs to be prepared first. • So, the order of preparation is: • Trial Balance Income Statement Balance Sheet

  9. Activity • Practice Owner’s Equity Section – pg. 93, Ex 13 • Practice Report Form Balance Sheet from pg. 91, Ex 9

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