Confused with exams

[Nima2703]

Could somebody please go through how we put the owner's equity section in balance sheets or extracts in exams because one exam was capital only because it was the same date as figures were given and it wouldn't balance unless it was only capital...the vcaa sample apparently requires capital plus net profit less drawings. Is this because there are additional memos which affect net profit? does capital never change? because it is assets minus liabilities isn't it? Could somebody please explain how to know what to put in an owner's equity section in an exam...such as what the questions is asking affects it or if figures were given... thanks

[abcdqdxD]

Could somebody please go through how we put the owner's equity section in balance sheets or extracts in exams because one exam was capital only because it was the same date as figures were given and it wouldn't balance unless it was only capital...the vcaa sample apparently requires capital plus net profit less drawings. Is this because there are additional memos which affect net profit? does capital never change? because it is assets minus liabilities isn't it? Could somebody please explain how to know what to put in an owner's equity section in an exam...such as what the questions is asking affects it or if figures were given... thanks

Could you be more specific by telling what question it is?

[Nima2703]

Well..I thought Capital was assets minus liabilities...but that's owner's equity.. Capital is determined by net profit and drawings? or Capital is assets minus liabilities and then you do net profit and drawings but then adding Net Profit will be like affecting Capital twice for the same thing no?

[abcdqdxD]

Remember the accounting equation: A-L=OE

Owner's Equity is not limited to capital, however in the case of a new business on the day of contribution, there will be no drawings or net profit since no drawings have been taken out and profit is not yet calculated for the period.

[Nima2703]

Okay. What I'm confused is that... if you pay for advertising...your bank goes down...but then your net profit ALSO goes down..so capital is assets-liabilities and bank has decreased so your capital will be lower...but your net profit also decreases as you've bought advertising expense...so owner's equity decreases by 2000 if advertising was 1000 no?

[abcdqdxD]

Okay. What I'm confused is that... if you pay for advertising...your bank goes down...but then your net profit ALSO goes down..so capital is assets-liabilities and bank has decreased so your capital will be lower...but your net profit also decreases as you've bought advertising expense...so owner's equity decreases by 2000 if advertising was 1000 no?

Capital figure is the figure at the start of the reporting period. Then you add/subtract Net Profit or loss and subtract drawings.

If Advertising expense was $1000, owner's equity would decrease by $1000.

[Nima2703]

Ohh okay thankyou very much

[Nima2703]

Okay but... net profit is revenues minus expenses...isn't owner's equity assets minus liabilities...I keep confusing myself and it's frustrating me so much

[Tragesty]

A-L=OE + (R-E)

Owner's equity will include capital (owner's stake in the business), plus net profit/loss and drawings.

[abcdqdxD]

A-L=OE + (R-E)

Owner's equity will include capital (owner's stake in the business), plus net profit/loss and drawings.

Correct