Accounting 1 Section 5.3 Review questions

Identify the two major financial statements you have learned so far

1) Balance sheet 2) Income Statement

What is the equity equation for a profit situation?

Beginning Capital + Net Income - Drawings = Ending Capital

What is the equity equation for a profit situation?

Beginning Capital - Net Loss - Drawings = Ending Capital

In which accounts are changes to equity recorded?

Changes to equity are recorded in the earnings and expenses accounts.

In which account will you find the beginning equity figure?

The beginning equity is found in the Owner, Capital account.

How do drawings affect the calculations of net income?

The drawings do not have an effect on calculating the net income, only the earnings and expenses accounts do

Is the following statement true or false? Explain. Most time, net loss will mean equity has decreased, even if the drawings are zero.

This is true if net losses are subtracted from the beginning capital; therefore a net loss will result in a decrease in equity.

Give an example of when equity would increase if there was a net loss.

This will happen If the owner were to invest an amount greater than the net loss, the equity would increase.

What will happen to equity if drawings are greater than net income?

If the drawings are greater than the net income, the equity account will decrease