Effect of operating profitably on the balance sheet
Not what you're looking for?
Explain the effect of operating profitably on the balance sheet of a business entity.
Does the receipt of cash by a business indicate that revenue has been earned?
Does the payment of cash by a business indicate that an expense has been incurred?
Purchase this Solution
Solution Summary
Solution answers three questions: the effect of operating profitably on the balance sheet of a business entity, does the receipt of cash by a business indicate that revenue has been earned and does the payment of cash by a business indicate that an expense has been incurred?
Solution Preview
Use has been made of material at:
highered.mcgraw-hill.com/ sites/dl/free/0072396881/23695/ch3.pdf
The effect of operating profitably on the balance sheet of a business entity:
As a result of operating profitably the company has a net income. Net income is an increase in owners' equity resulting from the profitable operation of the business.
Net income does not consist of any cash or any other specific assets. Rather, net income is a computation of the overall effects of many business transactions on owners' equity.
The effects of net income on the basic accounting equation are as follows:
Assets = Liabilities + Owners' Equity
Owner's Equity increases.
Assets Increases (e.g. either cash increases or the company uses net income to purchase assets such as inventory) or Liability decreases (e.g. the company uses net income to pay off creditors ) or both occur simultaneously to keep the equation balanced.
In the balance sheet, the changes in owners' equity resulting from profitable or unprofitable operations are reflected in the balance of the ...
Purchase this Solution
Free BrainMass Quizzes
Learning Lean
This quiz will help you understand the basic concepts of Lean.
Business Ethics Awareness Strategy
This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.
Introduction to Finance
This quiz test introductory finance topics.
Situational Leadership
This quiz will help you better understand Situational Leadership and its theories.
SWOT
This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.