Friday, December 14, 2018

The income statement of a proprietorship for the month of February indicates a net income of $17,500.

The income statement of a proprietorship for the month of February indicates a net income of $17,500. During the same period, the owner withdrew $25,500 in cash from the business for personal use.

Would it be correct to say that the business had incurred a net loss of $8,000 during the month? Discuss.

Answers:
No. It would be incorrect to say that the business had incurred a net loss of $8,000. The excess of the withdrawals over the net income for the period is a decrease in the amount of owner’s equity in the business.

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