Blair Scott started a sole proprietorship by depositing $40,000 cash in a business checking account. During the accounting period, the business borrowed $20,000 from a bank, earned $5,800 of net income, and Scott withdrew $7,000 cash from the business. Based on this information, what is the balance in Scott's capital account at the end of the accounting period?

Question

Arjun Crosby

Business

2 September, 11:07

Blair Scott started a sole proprietorship by depositing $40,000 cash in a business checking account. During the accounting period, the business borrowed $20,000 from a bank, earned $5,800 of net income, and Scott withdrew $7,000 cash from the business. Based on this information, what is the balance in Scott's capital account at the end of the accounting period?

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Answers (1)

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Hector Cohen · Answer 1

Ending capital = $38,800

Explanation:

Capital account measures a change in ownership funds of a business in a given period.

In this scenario to calculate Scott's capital account at the end of the accounting period we use the following formula

Ending capital = Beginning capital + contributions - withdrawals + Net income

Beginning capital = 0

Contribution = 40,000

Withdrawal = 7,000

Net income = 5,800

Ending capital = 0 + 40,000 - 7,000 + 5,800

Ending capital = $38,800