Statement of Owner's Equity | Answers

Indicate whether each item increases or decreases owner’s equity

Net Income
➛ Increase

Owner’s Drawings
➛ Decrease

Additional Investment
➛ Increase

Net Loss
➛ Decrease

Expenses
➛ Decrease

Task
Calculate the ending capital.

Ending Capital =
20,000 + 5,000 + 8,000 − 3,000 = 30,000

Ending Capital = 30,000

The following information relates to Sam Traders for the year ended 31 December



Task
Prepare the Statement of Owner’s Equity.

Sam Traders

Statement of Owner’s Equity
For the Year Ended 31 December

Net income increases owner’s equity.
➛ True

Drawings are an expense.
➛ False

Ending capital appears on the Balance Sheet.
➛ True

Statement of Owner’s Equity is prepared before the Income Statement.
➛ False

Additional investment decreases equity.
➛ False

A sole proprietor wants to understand why capital increased during the year.

Questions

Which statement explains changes in capital?
➛ Statement of Owner’s Equity

Name two items that increase owner’s equity.
➛ Net income
➛ Additional investment

What effect do drawings have on equity?
➛ Decrease owner’s equity

Where does net income come from?
➛ Income Statement

Which statement uses the ending capital balance?
➛ Balance Sheet

What is the purpose of the Statement of Owner’s Equity?
➛ To show changes in owner’s capital during a period

List two items that increase equity.
➛ Net income; Additional investment

Drawings increase capital.
➛ False

What happens to capital if the business makes a net loss?
➛ Capital decreases

Which statement is prepared immediately after the Statement of Owner’s Equity?
➛ Balance Sheet

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