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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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BuyFindarrow_forward

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Net income and owner's withdrawals

The income statement of a proprietorship for the month of February indicates a net income of $17,500. During the same period, the owner withdrew $25,500 in cash from the business for personal use.

Would it be correct to say that the business had incurred a net loss of $8,000 during the month? Discuss.

To determine

Net income: The net income refers to the excess of revenues over expenses, in a business after making all the adjustments. The net income can be expressed as follows:

Net Income = Revenues - Expenses

Withdrawals: Withdrawals refer to the amount of resources which is taken back from the business by the owner. It reduces the owner's equity.

To discuss: whether it would be correct, to say business incurred a net loss of $8,000.

Explanation

The business has not incurred a net loss, as the net income or net loss, is calculated in the income statement by projecting revenues against expenses. The withdrawals are shown in relation to the owner's equity...

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