# How to Find Additional Investment on a Summary of a Balance Sheet

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One of the benefits of good business accounting is that if you discover missing information, you can often find what it is from the rest of your records. For example, if your business received cash as an additional investment, but you didn't record the amount, you can figure it out by studying your balance sheet.

#### TL;DR (Too Long; Didn't Read)

You find additional investment as part of the owners' equity on the balance sheet. Equity equals the equity on the previous balance sheet, plus additional owner's investment, plus net income, less shareholder dividends or owners' draw. You can figure out the additional investment if you know the other numbers in the equation.

## Equity on the Balance Sheet

Underneath all the details, the balance sheet for your business is an equation: Your total assets minus your liabilities equals the owners' equity. For example, suppose your partnership has assets of \$275,000 and liabilities to pay off of \$180,000. The equity is \$95,000, which is what the owners would divide up if the company closed its doors, sold its assets and paid off its debts.

There are several ways owners' equity changes, year to year.

• Your company earns a profit. Rather than distribute all of it to the owners, you retain some of the earnings, increasing equity.

• You issue additional stock, bringing in more money.

• Withdrawing some of your investment reduces equity.

## Investing and Withdrawing

For an example of received cash as additional investment, suppose you're in a three-person partnership. Your company ended last year with \$360,000 in assets and \$120,000 in liabilities leaving \$240,000 in owner's equity.

This year, you're planning to buy your own office building, add staff, and take other steps to expand. You agree to put another \$120,000 additional investment into the company, raising owners' equity to \$360,000.

Alternatively, one of you might withdraw \$40,000 from equity, reducing it to \$200,000. The amount of equity each of you gets to withdraw should be worked out in the partnership agreement.

In a partnership or a sole proprietorship, the owners' capital accounts should show how much additional investment they contributed in a year or any other accounting period. If there's a screw-up in the accounting, you can reconstruct most of the information from the balance sheet.

The equity formula is:

Equity = received cash as additional investment - last year's ending equity + net income - owners' draws

You can use this formula to figure out the additional investment formula, as in this example:

• Last year's balance sheet reported owners' equity of \$600,000. Net income this year was \$350,000, and owners drew out \$300,000. That gives you a total of \$650,000 in equity.

• This year's balance sheet shows you actually have \$800,000 in equity after subtracting liabilities from assets.