It’s much preferable to keep track of capital accounts and owner withdrawals throughout the year. Arguments over how to divide up equity are a common problem for small businesses. For an example of received cash as additional investment, suppose you’re in a three-person partnership. Your company ended last year with $360,000 in assets and $120,000 in liabilities leaving $240,000 in owner’s equity. You find additional investment as part of the owners’ equity on the balance sheet.
- Figuring out how much each of you is entitled to withdraw takes a lot of thought and negotiation.
- Equity equals the equity on the previous balance sheet, plus additional owner’s investment, plus net income, less shareholder dividends or owners’ draw.
3.2Cromwell Corporation has the following trial balance account balances, given in no certain order, as of December 31, 2018.
3.2Provide the missing amounts of the accounting equation for each of the following companies.
3.5Determine whether the balance in each of the following accounts increases with a debit or a credit. This year, you’re planning to buy your own office building, add staff, and take other steps to expand. You agree to put another $120,000 additional investment into the company, raising owners’ equity to $360,000. LO
3.1Identify the normal balance for each of the following accounts.
Investing and Withdrawing
At the start of the company, you may not be sure how much each owner will contribute. Sometimes starting with a tentative agreement, then waiting a few months to sit down and negotiate is the best move. LO
3.5Journalize for Harper and Co. each of the following transactions or state no entry required and explain why.
3.4Identify whether each of the following transactions would be recorded with a debit (Dr) or credit (Cr) entry. LO
3.2Provide the missing amounts of the accounting equation for each of the following companies. LO
3.2Consider the following accounts, and determine if the account is an asset (A), a liability (L), or equity (E). Alternatively, one of you might withdraw $40,000 from equity, reducing it to $200,000. The amount of equity each of you gets to withdraw should be worked out in the partnership agreement. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License .
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For example, if your business received cash as an additional investment, but you didn’t record the amount, you can figure it out by studying your balance sheet. LO
3.5Indicate whether each account that follows has a normal debit or credit balance. LO
3.5Post the following November transactions to T-accounts for Accounts Payable and Inventory, indicating the ending balance (assume no beginning balances in these accounts). LO
3.5Post the following February transactions to T-accounts for Accounts Receivable and Cash, indicating the ending balance (assume no beginning balances in these accounts). LO
3.1For the following accounts please indicate whether the normal balance is a debit or a credit.
Different partners contribute different amounts and in different ways. You might contribute technical know-how, another partner might provide administrative expertise, and a third puts up most of the money. Figuring out how much each of you is entitled to withdraw takes a lot of thought and negotiation. One of the benefits of good business accounting is that if you discover missing information, you can often find what it is from the rest of your records.
Additional Investment Formula
In a partnership or a sole proprietorship, the owners’ capital accounts should show how much additional investment they contributed in a year or any other accounting period. If there’s a screw-up in the accounting, you can reconstruct most of the information from the balance sheet. Even if you can figure out the amount using the additional investment formula, you may not be able to figure out how much money each owner contributed.
3.2Cromwell Corporation has the following trial balance account balances, given in no certain order, as of December 31, 2018. Using the information provided, prepare Cromwell’s annual financial statements (omit the Statement of Cash Flows). LO
3.6Prepare an unadjusted trial balance, in correct format, from the alphabetized account information as follows.
Equity equals the equity on the previous balance sheet, plus additional owner’s investment, plus net income, less shareholder dividends or owners’ draw. You can figure out the additional investment if you know the other numbers in the equation. LO
3.4Identify whether ongoing transactions posted to the following accounts would normally have only debit entries (Dr), only credit entries (Cr), or both debit and credit entries (both). It’s not just a matter of tracking the amount of received cash as additional investment.