Wednesday, February 6, 2008

How to Calculate Net Income

The December 31, 2006 Balance Sheet of Business Card's Company shows Assets on the balance sheet of $35,000 and Liabilities of $23,000. During the year 2007, the company issued more stock for $3,500, and paid dividends of $800 to all shareholders. If the December 31, 2007 Balance Sheet shows Assets of $43,000, and Liabilities of $27,000, what must have been the Net Income for the year 2007?


Ending balance of each main account are given as follows (according to the accounting records in year 2006):

Asset = 35000
Liabilities = 23000

By using the accounting equation (A = L + E), we can find that Owner's Equity = 12000.




The ending balance for this company in 2007 shows:

Asset = 43000
Liabilities = 27000

By using the same method, Equity is calculated using the accounting equation A = L + E.
Equity = 16000

The question is to calculate Net Income.

Net income, dividends, stocks are all part of the owner's equity in the accounting equation.

OE beginning
+Net Income
+Common stock
-(Dividends)
= OE Ending

Calculate Net Income:

12000
+Net Income
+3500
-(800)
=16000

What is net income?

Answer:
Net income = 1300

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2 comments:

Anonymous said...

i dont understand net profit can someone help me i read the whole thing HELP!!!!!!!!!!!

Anonymous said...

I need help. I'm trying to figure out net income.
Beginning of the year
Assets $118,000 Liabilities $50,587
End of the year
assets $171,500 Liabilities 69,458
a. Owner made no investments in the business and no withdrawals were made during the year.
b. Owner made no investments in the business but withdrew $650 cash per month for personal use.
c. No withdrawals were made during the year but owner invested an additional $45,000 cash.
d. Withdrew $650 per month for personal use and the owner invested an additional $25,000 cash

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