1. Further Study of Owner’s Equity

2. Owner’s Equity At this point in the semester, I am hoping we are comfortable with the Owner’s Equity section of the balance sheet – The Value of the business Owner’s Equity P. Lovett, CapitalXXXXXX Total Liabilities & Owner’s EquityXXXXXX

3. Continuing with Owner’s Equity I haven't given you all of the accounts that are included in the Owner’s Equity section – I’m tricky like that We are missing two crucial accounts to truly calculate the value of a business – Drawings – Net Income (Loss)

4. Owner of the Business The Business Owner’s Equity Drawings

5. You have had several examples of the owner of a business depositing money into the business – DR – Cash – CR – Owner’s Equity (F. Name, Capital) Drawings is when the owner removes cash from the business – Why would he/she do that?

6. Drawings When the owner withdraws money from the business, it has the exact opposite affect on the books – CR – Cash (because it is going down) – DR – Owner’s Equity (F. Name, Drawings) In most cases you will be setting up a separate account for Drawings, rather than one Owner’s Equity account Drawing money from the business will decrease the overall value of the business

7. Drawings Example: The owner B. Awesome withdraws $500 from the business to pay herself for the last week. B. Awesome, Drawings Cash $500

8. Drawings When drawings is in it’s own account – (P. Lovett – Drawings) This is included in the Owner’s Equity section on the balance sheet Owner’s Equity P. Lovett, CapitalXXXXXX Less: P. Lovett, DrawingsXXXXXX Total Owner’s EquityXXXXXX Total Liabilities & Owner’s EquityXXXXXX

9. Continuing with the Owner’s Equity Section What other transactions can a business have that will add or take away to the overall value of the business?

10. Net Income Revenue will add value to the business Expenses will take away from the value of the business Does paying money for equipment take away from the value of the business? Does taking out a loan diminish the value of the business?

11. Net Income At the end of every fiscal period the accountant must see if the company is making more $$$$ than they are spending – Through preparing the income statement If Revenue > Expenses = Net Income (Profit) If Expenses > Revenue = Net Loss (Loss)

12. Net Income The amount the of net income or loss the business experiences during any period must be shown on the Balance Sheet – As either Adding to the value of the business (Net Income) Taking away from the value of the business (Net Loss)

13. Owner’s Equity TOTALLY NEW!!!! Starts with: The beginning value in our capital account (P. Lovett, Capital) for the period. – P. Lovett, Capital November 1 – The amount from our ledger Next: Add anything that will increase the value of our business – The Net Income

14. Owner’s Equity Next: Subtract anything that will decrease the value of our business – Drawings – Net Loss Next: State the increase or decrease in capital Finish with – the new value of our capital account for the end of the period

15. Owner’s Equity P. Lovett, Capital November 120,000 Add: Net Income for November 3,000 Less: P. Lovett, Drawings1,000 Increase in Capital2,000 P. Lovett, Capital November 3022,000 Owner’s Equity P. Lovett, Capital November 120,000 Less: Net Loss375 Less: P. Lovett, Drawings1,000 Decrease in Capital1,375 P. Lovett, Capital November 3018,625