Financial Statements of a Sole Proprietorship: Introduction
Every business starts with initial capital, which fluctuates with the transactions of the business. Revenue transactions and the additional capital increase the owner’s equity, while expenses and withdrawals decrease it. These increases or decreases are referred to as changes in owner’s equity.
To know the assets and liabilities of the business on a particular date, businesses prepare balance sheets. The balance sheet indicates the financial position of a business.
This section is designed to give you an idea about the preparation of a balance sheet and a Statement of Changes in Owners Equity. The final part of this section deals with the key terms used. Short questions, fill in the blanks, and multiple choice questions are given to test your reading and understanding.