• 1 Marks

FA – Nov 2013 – L1 – SA – Q2 – Accounting from Incomplete Records

Identifying the correct business equation to determine closing net assets.

For most small businesses, accounting records are either not available or incomplete. Which of the following business equations will be most appropriate to use in determining closing net assets?

A. Opening net assets + drawings – profit + capital introduced
B. Capital introduced + profit + drawings – opening net assets
C. Opening net assets + capital introduced + loss – drawings
D. Opening net assets + capital introduced + profit + drawing
E. Opening net assets + capital introduced + profit – drawings

E. Opening net assets + capital introduced + profit – drawings

Explanation:
To determine the closing net assets, you start with the opening net assets, add any capital introduced during the period, add any profit generated, and subtract drawings. This approach adjusts the net assets for all changes over the period to arrive at the closing balance.

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