changes to The Capital Account Our Capital Account

changes to The ‘Capital’ Account

Our Capital Account is made up of: • Revenue • Expenses • Drawings

Where else do we see Revenue and Expenses? • The Income Statement! Revenue - Expenses ---------= Net Income (Net Loss)

There is a connection: • Beginning Capital + Net Income - Drawings -------------= Ending Capital

The Balance Sheet • The Balance Sheet is where we usually see the Owner’s Equity section. (And where the Capital account is listed. ) • In order to make sure it is up to date, we must reflect the changes to Capital (ie. the changes to Revenue, Expenses, Drawings) of that amount!

To find our new Capital amount: we must calculate: Beginning Capital + Revenue Net Income or (Loss) - Expenses - Drawings --------------= Ending (our new) Capital ** Please write this down. **

Example 1 • Capital at the beginning of the year is $4000. • Net Income for the year is $1000. • Drawings is $0. • How much is the Capital account at the end of the year?

Example 2 • Owner’s equity at the beginning of the year is $20, 000. • Revenue for the year is $20, 000. • Expenses are $5, 000. • Drawings are 5, 000. • What is the owner’s equity (capital) at the end of the year?

Example 3 • Capital starts the year at $100, 000 • There is a net loss of $40, 000 • There are drawings of $10, 000 • What is the Capital account at the end of this fiscal period?

homework • Complete the handout for Exercise 1 & 2 on page 140. • Complete the ‘Comprehensive Case’ package you have been given.