I could use a little advice on how to calculate Owner's Equity for an existing (20 years) sole proprietor company.
The business owner was asked to produce the Balance sheet report for the last 3 years so a potential buyer can review the financials. The only problem that I have is how to calculate the owner's equity $$ amount as it has never been calculated.
The company was set up in QBO beginning in 2018, but the owner's equity was not entered b/c was not calculated by the tax accountant. I do have Schedule C from 2015, 2016, and 2017 and the P&L for 2016, 2017, and 2018.
I can calculate owner's equity - Net Profit less owner's draw should = Owner's Equity. What about any retained equity from prior years...should this be included? Am I overthinking this?
2015 Net Profit - Owner Draw = Ending Owner's Equity
2016 Net Profit -2016 Owner Draw + 2015 Ending Owner's Equity = 2016 Ending Owner's Equity
This company is very basic and all assets have been fully depreciated. Is has no A/R and the only accounts payable would be the current month's 2019 bills. It has a bank account and a credit card that have balances.
I want to calculate 2016 as such:
2016 Bank Account Ending Balance - 2016 Credit Card Ending Balance = 2016 Owner's Equity (Which should be Net Profit - Owner Draws).
The only retained earnings if the bank account balance as of Jan. 1st.
I am a bit confused. Any adive would be greatly appreciated.
My intuition says that: Year-End Cash (Bank Account) balance - Year-End Credit Card balance =Year End Owner's Equity