For the financial year ending 30 June, Sunset Ltd had a beginning balance for equity of $180,000 and an ending balance of $175,000. During the year the owner withdrew $120,000 for private use. How much profit did Sunset Ltd earn during the year?$125,000$60,000$5,000$115,000
Question
For the financial year ending 30 June, Sunset Ltd had a beginning balance for equity of 175,000. During the year the owner withdrew 125,0005,000$115,000
Solution
Sunset Ltd earned a profit of $115,000 during the year.
Here's how to calculate it:
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The beginning balance of equity is the amount of equity at the start of the year, which is $180,000.
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The ending balance of equity is the amount of equity at the end of the year, which is $175,000.
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During the year, the owner withdrew $120,000 for private use. This withdrawal reduces the equity of the company.
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To find out how much profit the company earned during the year, you need to add the amount withdrawn to the ending balance of equity, and then subtract the beginning balance of equity from the result.
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So, the calculation would be: 120,000 (withdrawals) - 115,000.
Therefore, Sunset Ltd earned a profit of $115,000 during the year.
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