Owner’s equity is the residual value of a sole proprietorship -- a business owned by an individual -- if it paid off all of its debts. A withdrawal occurs when the owner takes money out of the company that will no longer be used in the company. The statement of owner’s equity shows the items that cause changes to owner’s equity during an accounting period. Investments and net income increase owner’s equity. A net loss and withdrawals decrease owner’s equity. You can calculate a sole proprietorship’s withdrawals if you know the other items on the statement of owner’s equity.
Identify the amounts of beginning owner’s equity, ending owner’s equity, investments and net income or a net loss, listed on a sole proprietorship’s statement of owner’s equity. For example, assume a statement of owner’s equity shows $50,000 in beginning owner’s equity, $63,000 in ending owner’s equity, $4,000 in investments and $10,000 in net income.
Subtract investments from ending owner’s equity. In this example, subtract $4,000 in investments from $63,000 in ending owner’s equity to get $59,000.
Subtract the amount of net income from your result. Alternatively, add the amount of a net loss to your result. In this example, subtract $10,000 in net income from $59,000 to get $49,000.
Subtract the amount of beginning owner’s equity from your Step 3 result to calculate the withdrawals on the statement of owner’s equity. The result will be a negative number since withdrawals reduce owner’s equity. Concluding the example, subtract $50,000 from $49,000 to get -$1,000. This means the sole proprietorship had $1,000 in withdrawals during the period.
Tips
A corporation’s equity and withdrawals are known as stockholders’ equity and dividends, respectively.
References
Tips
- A corporation’s equity and withdrawals are known as stockholders’ equity and dividends, respectively.