The Capital Section of the Classified Balance...
13
The Capital Section of the Classified Balance Sheet
Transcript of The Capital Section of the Classified Balance...
The Capital Section of the
Classified Balance Sheet
The Capital section of the classified
Balance Sheet
• The revenues, expenses, and drawings
determine the capital of a company at the
end of a fiscal period.
• Note: The Classified Balance Sheet will
not be seen until Unit 4.
The Capital section of the classified balance sheet
In Unit 2, the Balance Sheet had the following layout. This is known as the “account form” of a balance sheet. That is, the balance sheet is presented in a horizontal, or side-by-side format.
The Capital section of the Classified Balance Sheet
Another style of
balance sheet is the
“report form”. The
balance sheet is
presented in a
vertical format. This
form is used more
frequently by
accountants.
The Capital section of the Classified Balance Sheet
In this activity, we will concentrate on explaining the capital section of
the classified balance sheet. The other items will be explained in Unit 4.
The Capital section of the Classified Balance Sheet
There will be a decrease in equity
if the net income is smaller than
the drawings total or if there is a
net loss.
Owner’s name is cited at the
beginning.
Beginning Balance from
previous year’s Balance
Sheet.
Net Income from
Income Statement.
Drawings is the amount
the owner took out of
business.
Increase in Equity=
Beginning balance + net
income – drawings.
New Balance = Beginning
Balance + Increase in equity
The Capital section of the Classified Balance Sheet
The following balance sheet is given to you by the accountant. The balances for the six-month period ending on December 31th 2015 are also given. Provide an updated balance for the capital account on that date.
Accounts and balances on Dec 31th 2015
Revenues
Fees Earned $120,000
Commission Earned 45,000
Expenses
Advertising Expense 1,500
Heating Expense 3,200
Miscellaneous Expense 2,100
Rent Expense 24,000
Truck Expense 800
Wages Expense 62,000
Drawings
J. Hori, Drawings 7,000
The Capital section of the Classified Balance Sheet
Step 1: The title (owner’s name)
J. Hori, Capital
The Capital section of the Classified Balance Sheet
Step 2: The ending balance from the previous balance sheet is now the
beginning balance for this period. This figure is placed in the 2nd column.
J. Hori, Capital
Balance, June 30st $370,741.45
The Capital section of the Classified Balance Sheet
Step 3: Determine the net income (net loss) for the period. This figure is placed
in the 1st column.
Revenues = 120,000 + 45,000 = 165,000
Expenses = 1,500 + 3,200 + 2,100 + 24,000 + 800 + 62,000 = 93,600
Revenues – Expenses = 71,400 (net income)
J. Hori, Capital
Balance, June 30st $370,741.45
Net Income $71,400
The Capital section of the Classified Balance Sheet
Step 4: Indicate the drawings for the period. This figure is placed in the 1st
column.
J. Hori, Capital
Balance, June 30st $370,741.45
Net Income $71,400
Drawings 7,000
The Capital section of the Classified Balance Sheet
Step 5: Calculate the increase/decrease in equity. This figure is placed
in the 2nd column. Net income (loss) – drawings.
J. Hori, Capital
Balance, June 30st $370,741.45
Net Income $71,400
Drawings 7,000
Increase in equity 64,400.00
The Capital section of the Classified Balance Sheet
Step 6: Calculate the ending balance for the capital. This figure is
placed in the 3rd column. Beginning balance +/- increase/decrease in
equity.
J. Hori, Capital
Balance, June 30st $370,741.45
Net Income $71,400
Drawings 7,000
Increase in equity 64,400.00
Balance, December 31st $435,141.45
