Basic Accounting Equation and Changes to Owners Equity Question (Fill in the Blank)

by Sinthu
(Canada)

Q: The summaries of balance sheet and income statement data follow.


Beginning of year:
Total assets $ 85,000
Total liabilities 62,000
Total owner’s equity ?

End of year:
Total assets 110,000
Total liabilities ?
Total owner’s equity 60,000

Changes during year in owner’s equity:
Investments by owner ?
Drawings 18,000
Total revenues 175,000
Total expenses 140,000

Required: Calculate the missing items above.



A:
Beginning of year:

If Assets = Owners Equity + Liabilities then
Owners Equity = Assets - Liabilities
= $85,000 - $62,000
=
$23,000 Owners Equity

End of year:

If Assets = Owners Equity + Liabilities then
Liabilities = Assets - Owners Equity
= $110,000 - $60,000
=
$50,000 Liabilities

basic accounting equation question answer


Changes during the year in owner’s equity:

For this final part of the question we need to reconstruct the
statement of owners equity or basically how owners equity at the end of the year is calculated starting with equity at the beginning of the year plus/minus changes during the year.

Opening Balance $23,000
Investments by owner ?
Drawings -$18,000
Total revenues +$175,000
Total expenses -$140,000
Closing Balance $60,000


To solve this problem we're going to take the statement of owners equity with all the figures above and put them in a formula:

Closing Balance = Opening Balance + Investments by Owner - Drawings + Revenues - Expenses

Switching around this equation to make "Investments by Owner" (capital) the subject, we then get:

Investments by Owner = Closing Balance - Opening Balance + Drawings - Revenues + Expenses
= $60,000 - $23,000 + $18,000 - $175,000 + $140,000
=
$20,000 Investments by Owner

Here is how a complete statement of owners equity would look for this example:

statement of owners equity question example


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If you had some difficulty with this exercise, don't worry! Check out some of the related tutorials and questions further below.

Best,
Michael Celender


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