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Calculating Net Income
How does further investment by an owner affect the net income?
Example: Revenues ae $100,000 Expenses are $50,000 Owner invests a further $25,000 in the company during the accounting period. How do I calculate Net Income and how does the owner's investment effect the net income? Thanks Pam |
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Net Income is Revenues - Expenses.
Owners investment does not affect the Net income. The net Income is added to the Owners Equity Section in the Balance Sheet as Retained Earnings. In your example Net Income is $50,000 which is then added to your owners Equity Section of the Balance Sheet using the retained earnings part of the Owners Equity. The $25,000 investment made by the owner is added directly to the Owners Equity. The journal Entry is: Debit cash 25,000 Credit Owners Equity 25,000 |
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