Great Marks Company

Allen Marks is the sole owner and operator of Great Marks Company. As of the end of its accounting period, December 31, 2009, Great Marks Company has assets of $940,000 and liabilities of $300,000. During 2010, Allen Marks invested an additional $65,000 and withdrew $45,000 from the business. What is the amount of net income during 2010, assuming that as of December 31, 2010, assets were $995,000, and liabilities were $270,000?

these types of questions can be difficult to wrap your brain around, but if you can understand the relationship between changes on Aseets and Liabilities then the changes in Operating Expense to isolate Net Income can come easier.

So, in this case, you have the 2009 ending figures of:
Assets = 940,000
Liabilities = 300,000
Which means Operating Expense is = 640,000

In 2010 there were ending figures of:
Assets =995,000
Liabilities =270,000
Which means Operating Expense is= 725,000

So, the increase in operating expense from 2009 to 2010 is 85,000.

But this is not the amount of Net Income. We need to isolate the other activities in the Capital Account to get to the operating expense.

The owner invested an additional 65,000, which inflated the Capital account, so we need to subtract that out.
The owner withdrew $45,000, which deflated the Capital account, so we need to add that back in.

When we do that, we come up with the 65,000.

You have to take this step by step. First you have to figure out the liabilities and assets for each year. Then you have to look at what the ownter invested into the company and then what the owner withdrew from the company when dealing with the capital account. This then gives you the net income of