Equities Chapter
14 POA notes
What is a sole proprietorship?
- A sole proprietorship is a business that is completely owned by one person.
- They may contribute personal assets which are recorded as capital.
- Including the contributions at the time of starting the business and any
additional contributions.
- The owner may also withdraw business assets for personal use. This is
recorded as drawings.
The contributions and withdrawal of assets must be recorded due to accounting
entity theory. The theory states:
Business activities are separate from the actions of its owner. All transactions
must be recorded from the business’s POV.
The calculation for owners' equity
Owners equity= (capital - drawings) + (profit - loss)
Can be found in the accounting equation.
Assets= Liabilities + [ (Capital - Drawings) + (Income - Expenses)]
The portion in green represents the owner’s equity
Therefore, contributions of assets by the owner and profit earned by the
business increase OE. While drawings and losses decrease OE.
14 POA notes
What is a sole proprietorship?
- A sole proprietorship is a business that is completely owned by one person.
- They may contribute personal assets which are recorded as capital.
- Including the contributions at the time of starting the business and any
additional contributions.
- The owner may also withdraw business assets for personal use. This is
recorded as drawings.
The contributions and withdrawal of assets must be recorded due to accounting
entity theory. The theory states:
Business activities are separate from the actions of its owner. All transactions
must be recorded from the business’s POV.
The calculation for owners' equity
Owners equity= (capital - drawings) + (profit - loss)
Can be found in the accounting equation.
Assets= Liabilities + [ (Capital - Drawings) + (Income - Expenses)]
The portion in green represents the owner’s equity
Therefore, contributions of assets by the owner and profit earned by the
business increase OE. While drawings and losses decrease OE.
