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    snp01312014's Avatar
    snp01312014 Posts: 2, Reputation: 1
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    #1

    Aug 10, 2014, 03:45 AM
    Net loss
    How do you determine you net loss if only given assets, liabilities, and investments by owner? The assets are $530,238, liabilities are $272,088, and investments are $49,259. It is the second year the business has been up and running.
    pready's Avatar
    pready Posts: 3,197, Reputation: 207
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    #2

    Aug 10, 2014, 04:18 PM
    You need more information to solve this problem. You will need the end of year 1 Assets, liabilities and or Owners Equity.


    The first formula you need to know is the basic accounting equation, which is:
    Assets = Liabilities + Owners Equity

    This formula can be rewritten as:
    Owners Equity = Assets - Liabilities.

    Once you have year one Assets, Liabilities and Owners Equity you can solve this problem.

    First you need to use the above formula to get year 1 ending owners equity, which will be year 2 beginning owners equity.

    Next you need to get year 2 ending owners equity by using the above formula with the information provided in your previous post.

    Now you can solve for net income or loss during the year, but you need to know the formula for changes in owners equity, which is:

    Ending Owners Equity = Beginning Owners Equity + Investments + net Income - Cash Dividends or Owners Withdrawals

    This formula can be rewritten to find net income, as:
    Net Income = Ending Owners Equity - Beginning Owners Equity - Investments + Cash Dividends or Owners Withdrawals
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    snp01312014 Posts: 2, Reputation: 1
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    #3

    Aug 11, 2014, 09:04 AM
    The net income for year 1 is 170,842. In year two he had now drawings.
    Andruw Company had the following assets and liabilities on the dates indicated.

    December 31
    Total Assets
    Total Liabilities
    2011 $470,238 $222,088
    2012 $530,238 $272,088
    2013 $660,238 $372,088

    Andruw began business on January 1, 2011, with an investment of $97,626.

    From an analysis of the change in owner's equity during the year, compute the net income (or loss) for:

    (a) 2011, assuming Andruw's drawings were $20,318 for the year.

    Net income for 2011 $
    170842
    (b) 2012, assuming Andruw made an additional investment of $49,259 and had no drawings in 2012.

    Net loss for 2012 $
    pready's Avatar
    pready Posts: 3,197, Reputation: 207
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    #4

    Aug 11, 2014, 10:30 AM
    You are correct for year 1 Net Income. You also have year 1 ending Owners Equity, which is $248,195.

    For year 2 start with calculating Owners Equity at year 2 end.

    Now you can solve the problem.

    Net Income or loss for year 2 = Year 2 ending Owners Equity - Year 1 Owners Equity(year 2 beginning) - Additional owner Investments + Owners Drawings.
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