Roll equity forward — in both business dialects
Find the missing value in the equity equation, then place every value on the right line of the statement. A corporation and a sole proprietorship do the same job with different words.
Equity at the start, plus the profit, minus what the owners took out, gives equity at the end. Every business does this. Only the words change.
Beginning Retained Earnings + Net Income − Dividends = Ending Retained Earnings
Dividends are cash paid out to the shareholders.
Beginning Capital + Investments + Net Income − Drawings = Ending Capital
Sole proprietorships use a Statement of Owner's Equity instead of Retained Earnings.
The single owner can also put money in. That extra line is Investments. Drawings is money the owner takes out.
Read the line names. Retained Earnings and Dividends mean a corporation. Capital, Investments and Drawings mean a sole proprietorship.
| Corporation | Sole proprietorship |
|---|---|
| Retained Earnings | Owner's Capital |
| Dividends | Owner's Drawings |
| — | Owner Investments |
Corporation: $10,000 + $5,000 − $2,000 = $13,000
Sole proprietorship: $15,000 + $5,000 + $8,000 − $3,000 = $25,000
Dividends and Drawings are not expenses. Net Income comes from the Income Statement, and the ending figure goes to the Balance Sheet.
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