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## Latest \$type=blogging\$count=5\$author=hide\$comment=hide\$label=hide\$date=hide\$show=home

"Hi Sir, can you help me in solving this example?

I know it is very petty but I feel, there is wrong in the example.

Some inexperienced accountant prepared balance sheet for ABC company:

assets: liabilities:

cash 60000 notes payable 103000

accounts receivable 70000 accounts payable 112000

supplies 18000 salaries payable 20000

equipment 30000 total liabilities = 235000

trucks 42000 owners' equity:

building 50000 capital stock 120000

land 80000 retained earnings ???

operating expenses 100000

service revenue 70000

total assets = 350000 total owners equity = I don't know but it should be 115000

Compute retained earnings and what are operating expenses and service revenue in owners' equity?
thanks

Ahmed from Cairo

Ahmed, I tried to solve this question in rough paper and I found mistake in figure of capital stock. It  should be 12000 instead of 120,000. One more thing, you should know the meaning of supplies. Supplies is not represent as sundry creditor but it represent as closing stock. Now, we are reading to show what are the balance sheet missing amount?

 Liabilities Amount Assets Amount Notes Payables 103000 Cash 60000 Account Payables 112000 Account receivables 70000 Salary O/S 20000 Supplies 18000 Total Outside Liabilities ------------- 235000 Equipment 30000 Retained Earning ??? Capital Stock 12000 Owner's Equity ??? Truck 30000 Building 50000 Land 80000 Total  Liabilities 350000 Total Assets 350000

Now we know simple formula of accounting equation

Owner's Equity + Retained Earning = Total Assets - Total Outside Liabilities

= 350000 - 235000

Total Owner's Equity will = 1,15,000

One important second mistake is in the figures of service revenue and operating expenses
Correct figure should

Service expenses = 100,000

Operating expenses = 70,000

Now net profit will be = service revenue - operating expenses

= 1,00,000 - 70,000

= 30,000

Because business is of company, Retain earning will not be the part of total Owner's Equity

Net Owner's Equity = total owner's equity - retained earning

= 115000 - 30000 = 85000

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Accounting Education: How to Find Balance Sheet Missing Amount
How to Find Balance Sheet Missing Amount
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Accounting Education
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