Owner’s Equity and the Report Form Balance Sheet

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