How do you calculate net income?

Question

On January 1, George Company had assets of $20,000 and liabilities of $9,000. On December 31, George Company had assets of $32,000 and liabilities of $14,000. During the year, George made additional investments of $8,000 into the business and made $6,000 of withdrawals from the business. The net income for the year was?

The accounts for Erma Owen's business show the following for November: Cash received $60,000; Accounts Receivable $52,500; Revenues $93,750; Total Liabilities $150,000; Expenses $63,750; and Cash paid $120,000. Under accrued basis accounting, the company had a net income/losss of?

Answer 1

George Company:

George Company had equity of $11,000 ($20,000 assets - $9,000 liabilities) on January 1.  On December 31, it had equity of $18,000 ($32,000 assets - $14,000 liabilities).  George contributed $2,000 of equity during the year ($8,000 investment - $6,000 withdrawl).  The difference is net income.

Start:  Beginning equity - $11,000

Add:   Contributions - $2,000

Add:   Net income - $5,000

End:   Ending equity - $18,000

Emma Owens:

Under the accrual method of accounting cash flows are not relevant.

Revenue - $93,750

Less expenses - $63,750

Net income - $30,000

Hope this helps.