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smartangel88
Feb 8, 2008, 06:12 PM
Jim Ault established Ault's Dry Cleaners, a sole proprietorship, by investing $1000 on January 1. During the first year of operation, the business generated net income of $42000. The ending balance of the capital account was $20000. What was the amount of the cash Jim withdrew for personal use during the year?
a.$0
b.$1000
c.$20,000
d.$23000

JBeaucaire
Feb 8, 2008, 06:16 PM
Income - $42000 + $1000 (initial investment) - $20000 (current balance)

EDIT: Sheesh, get out a calculator and input the formula above (without the words).

morgaine300
Feb 9, 2008, 10:37 PM
smartangel, I think the point is for you to figure out the answer yourself and not have someone else do all your work for you. JB has already given away the equation itself. Do you need someone to also put it in your calculator for you? I tutor at the college level and end up with an incredible amount of students incapable of doing basic math. This is probably why. (Sorry, but if you want to get through school, you need to deal with that truth.)

You've been given a beginning balance. What does net income do to capital/equity? And what would a withdrawal do to it? The best way to solve these is to put in the ones you know. i.e. if you know something adds to the account, then add it, and if you know something subtracts, then subtract it. When you've done all you can and you now have that sub-total and an ending balance, then you have to think: what number would you put in to get from your sub-total TO that ending balance? i.e. if I had 10 apples and I now have 7 apples, how many must I have taken away? I know apples seem elementary, but it's the same math, whether it's apples or capital accounts. If you can see that, it becomes a lot easier.

JBeaucaire
Feb 9, 2008, 11:55 PM
I'm having trouble deciphering this person's forum name.