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    pencilpusher's Avatar
    pencilpusher Posts: 11, Reputation: 1
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    #1

    Feb 6, 2009, 04:22 PM
    On B/S, should A/R+Cash-AP=Net Income?
    On the balance sheet, should cash + accounts receivable - accounts payable = net income? (Accrual)

    I don't think so but I can't explain why. Please help.

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    MLSNC's Avatar
    MLSNC Posts: 158, Reputation: 17
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    #2

    Feb 6, 2009, 06:55 PM

    I agree with your answer.

    Remember the basic accounting equation: assets - liabilities = owner's equity, not net income. In the broad sense, owner's equity is the accumulation of income.

    The original formula in your question could be correct, but only for the first year of the entity.
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