Chapter 5 Lesson 5.3

1. Chapter5 Lesson 5.3 Equity Relationships and The Balance Sheet

3. How to take the information from a trial balance to create a Balance Sheet

13. Net Income = Revenue – Expenses = 3199 - (25 + 40 + 72 + 400 + 90) = 2572

14. Change in equity or increase in capital is calculated by subtracting drawings from Net Income

15. Ending Capital = Beginning Capital + Change in Capital Ending Capital = Beginning Capital +(Net Income – Drawings)

16. Ending Capital = Beginning Capital + Change in Capital Ending Capital = Beginning Capital +(Net Income – Drawings)

17. Ending Capital = Beginning Capital + Change in Capital Ending Capital = Beginning Capital +(Net Income – Drawings)

18. Ending Capital = Beginning Capital + Change in Capital Ending Capital = Beginning Capital +(Net Income – Drawings) = 3650 + (2572 -1000) =3650 + 1572 =5222

19. Ending Capital = Beginning Capital + Change in Capital Ending Capital = Beginning Capital +(Net Income – Drawings) = 3650 + (2572 -1000) =3650 + 1572 =5222

20. Total Assets must equal Total Liabilities and Owner’s Equity on the Balance Sheet

21. Therefore if you subtract Liabilities from Assets ( 5672 – 450) you will be able to find out the ending capital balance

22. It is a means of double checking you calculations for Net Income and Increase in Capital

23. Assets = Liabilities + Owner’s Equity

24. Beginning Capital + Net Income – Net loss – Drawings = ending capital

25. Beginning Capital + Net Income – Net loss – Drawings = ending capital There will either be a net income or a net loss not both… but they are both included in the equation sot that you don’t forget to include either one.

26. So remember…. Beginning Capital + Net Income – Net loss – Drawings = ending capital

27. What will cause capital to decrease?

28. What will cause capital to decrease?If drawings are greater than net income then capital will decrease.

29. What will cause capital to decrease?If drawings are greater than net income then capital will decrease. If there is a net loss then capital will decrease

30. What will cause capital to decrease?If drawings are greater than net income then capital will decrease. If there is a net loss then capital will decrease. (In this case drawings only contribute to more of a decrease in capital.)

31. You will now be working with three accounting equations: Assets = Liabilites + Owner’s Equity Net Income = Revenues – Expenses Ending Capital = Beginning Capital + Change in Equity

32. What causes equity to change? Revenue, expenses, drawings, investments from the owner You will now be working with three accounting equations: Assets = Liabilites + Owner’s Equity Net Income = Revenues – Expenses Ending Capital = Beginning Capital + Change in Equity