What do we know?
• We know what an expanded ledger is!
• We know how to show balances of new accounts on income statements.
• We know the income statement is the second major statement in accounting.WHAT IS THE FIRST?
• We have to understand equity accounts and how they relate to each other mathematically. Let’s look again at Eve Boa, LLB.
• Everything is in balance.
• New equity accounts are there.
• To make a balance sheet agree, theamounts in the trial balance could bemoved to a balance sheet, but largecompanies would have trouble withthis. SO WHAT DO WE DO?
• We have to come up with some equity calculations. Debits and credits will help us understand the calculations needed.
• Eve’s beginning capital was $21,878. This is a credit balance.
• If revenues are greater than expenses, what do we have?
Equity Calculations.
Beginning Capital + Net Income
Beginning Capital + Net Income – Drawings =
Ending Capital$21,878 + 8209 = 26,137
Equity Calculations
• What if the Net Income is a Net Loss?
• Capital can also be a debit balance. How? Then what would we do?
• What if there are investments?
Beginning Capital - Net Income – Drawings =
Ending Capital
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