how does profit change its financial condition 626207

Suppose that all revenue transactions during the year increase cash and that all expense transactions during the year decrease cash. In other words, suppose no other assets and no operating liabilities are affected by the profit-making activities of the business during the year (this scenario isn’t realistic and is assumed only for this problem). The net income (bottom-line profit) of this a typical business for the year is $950,000. How does profit change its financial condition?

Condensed Balance Sheet




Operating liabilities



Interest-bearing liabilities



Owners’ invested capital

PP&E, net


Owners’ retained earnings



Liabilities and Owners’ Equity