Memo to Business Owner
University of Phoenix Online
Dr. Manuel Torres
May 12, 2014
To: CEO of GlitchtheGrid
Date: May 12, 2014
Subject: Owner’s Equity
The purpose of this memo is to inform you about owner’s entity that involves a growing business. This memo will explain how owner’s equity can be determined and important informations that are exclusives to every business owner.
Owner equity is one of the three main components (Equity, Assets and Liabilities) of a sole proprietorship balance sheet that are used in an accounting equation. The owner equity is the business assets that is owned by the business owners. It is a measure of the company’s net worth, calculated by subtracting total liabilities from total assets. Owner equity is also known as a shareholder’s equity or book value that came from two sources.
1. Capital: Received from investors in exchange for stocks from the company. It is the total amount that was used to start up a business.
2. Retained Earnings: It is the amount or earnings that the business accumulated during its course of operation.
The more a business makes, the more the owner’s equity increases. When the business is at a loss, the owner equity also decreases, vice versa. A business goal is to operate profitably without long term liability to maximize owner’s equity. Once the owner begin to withdraw money from the owner’s equity account, the value is known as capital gains.
Always track and record every dollar and cents coming into and going out of your business to accurately measure the business financial health and calculate owner’s equity. There are programs available to business owners who are having issues with accounting equation. One known software that is highly recommend is quickbook. Quickbook have every tool that a business need and most of all track earnings that is coming into and going out of the business. Quickbook enable a...