Friday, March 25, 2011

Practice Calculating Net Income Accounting Problem

Practice Calculating Net Income with this Simple Accounting Problem. 

John is the owner of  a computer manufacturing business. At the end of its accounting period, June 1, 2007, the computer manufacturing business has assets of $950,000 and liabilities of $300,000.  Assuming that as of June 1, 2008, assets were $1,200,000, liabilities were $195,000, and there was no additional stock was issued nor dividends distributed, what was the Net income (or net loss) during 2008?


Use this accounting equation: Equity 2008- Equity 2007 = Net Income for 2008

This accounting formula works because no additional stock was issued nor dividends distributed by the computer manufacturing business.

The total equity for 2007 and 2008 can be calculated by subtracting Liabilities from Assets, such that, A - L = E.

Equity 2007 is 650,000 (950,000-300,000) and Equity 2008 is 1,005,000 (1,200,000-195,000).

See also calculating net income and look at an example of an accounting balance sheet

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