Florida General Contractor Practice Exam

If the total income is $176,304 and the total expenses are $104,964, how much would the owner's equity be increased on the balance sheet?

1. $71,340

2. $41,340

3. $67,340

4. $89,340

The correct answer is: $71,340

To determine how much the owner's equity is increased on the balance sheet, you start by calculating the net income, which is the difference between total income and total expenses. In this case, you have total income of $176,304 and total expenses of $104,964. To find the net income, you subtract the total expenses from the total income: Net Income = Total Income - Total Expenses Net Income = $176,304 - $104,964 Net Income = $71,340 This figure, $71,340, represents the amount by which the owner's equity increases. In accounting, net income directly affects the owner's equity because it adds to the value of the business. When a business earns a profit, that profit is retained in the business, contributing to the owner’s equity. Therefore, the correct increase in owner's equity of $71,340 accurately reflects the net income derived from the total income minus total expenses, providing a solid understanding of how net income impacts the balance sheet.