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RD
RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience:  CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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Beginning assets 42,000, liabilities 25,000, Ending assets

Customer Question

Beginning assets = 42,000, liabilities = 25,000, Ending assets = 60,000, liabilities = 34,000. Owners Equity: Onvestments = 0, withdrawals = 12,000. Income Statement: Revenues = 244,000, Expenses = ?. How do I calculate the Net Income
Submitted: 5 years ago.
Category: Tax
Expert:  RD replied 5 years ago.

Link to solution

 

 

Soln

 

Customer: replied 5 years ago.

my question was "how to calculate the net income" in otherwords, can you break it down please?

Expert:  RD replied 5 years ago.

I have provided you the step wise calculation in excel.

 

First you need to determine the owners equity, than the net income and than the expenses.

 

 

Customer: replied 5 years ago.

I suppose what I don't understand is how did you arrive at the figure of $21,000, did you add or subtract, if so what are the actual figures that you used. This is new and very confusing to me so I really need the help

thanks

Customer: replied 5 years ago.

sorry, I guess I should be asking how you came up with the Expense amount of $223,000? this is what I cannot figure out, this is my first accounting class and I'm really having a problem with it, I will be needing your services again soon I'm sure, I understand everything up to the Expenses, please reply as I am stuck and I can't move on until I understand what I'm doing because the system won't allow me to.

thank you

Customer: replied 5 years ago.
do you need another $15 before you can completely answer the question?
Expert:  RD replied 5 years ago.

In order to determine the expense amount, you have the sales amount given but you need the net income.

 

Hence, you need to first find out the balance in equity account which is found out in Step 1 in the excel. It is calculated as Assets minus liabilities.

 

Once you find equity, you can find out the income for the year. This is calculated as Closing equity plus drawing minus the opening equity.

 

Once you have the net income, you will reduce the net income from sales to determine the expenses.

 

 

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