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-   -   Net income (https://www.askmehelpdesk.com/showthread.php?t=799999)

  • Aug 24, 2014, 09:43 AM
    flbratz
    Net income
    December 31, 2012
    Assets $ 55,000 $ 34,000 $ 24,000 $ 60,000 $ 119,000
    Liabilities 24,500 21,500 9,000 40,000 ?
    December 31, 2013
    Assets 58,000 40,000 ? 85,000 113,000
    Liabilities ? 26,500 29,000 24,000 70,000
    During year 2013
    Stock issuances 6,000 1,400 9,750 ? 6,500
    Net income (loss) 8,500 ? 8,000 14,000 20,000
    Cash dividends 3,500 2,000 5,875 0 11,000

    How do I find net income in the second column of this sheet?
  • Aug 24, 2014, 11:22 AM
    pready
    For this type of problem you need to know 2 formulas; 1: basic accounting equation, and 2: changes in equity.

    The basic accounting equation is:
    Assets = Liabilities + Owners Equity which can be rewritten two additional ways to find a missing amount. The other ways it can be written are:
    Liabilities = Assets - Owners Equity
    Owners Equity = Assets - Liabilities

    Now for changes in Equity the expanded formula is:
    Ending Owners Equity = Beginning Owners Equity + Stock Issuances(additional investments) + Net Income(Revenues - Expenses) - Cash dividends(or drawings)

    For Net Income the formula can be rewritten as:
    Net Income = Ending Owners Equity - Beginning Owners Equity - Stock Issuances + Cash Dividends

    For Stock Issuances the formula can be rewritten as:
    Stock Issuances = Ending Owners Equity - Beginning Owners Equity - Net Income + Cash Dividends

    To Find assets use the beginning owners equity and solve for the ending equity, then add your ending owners equity and ending liabilities.

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