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Is it possible for owner's equity to be a negative amount?

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تم إضافة السؤال من قبل Rehan Qureshi , Financial Consultant , Self Employeed
تاريخ النشر: 2013/12/26
Rehan Qureshi
من قبل Rehan Qureshi , Financial Consultant , Self Employeed

It is possible for owner's equity to be a negative amount. The following illustrates how it might occur.In2008, a sole proprietorship was begun with the owner investing $100,000. During the years2008 through2011 the owner withdrew most of each year's net income. As a result, the total owner's equity at the end of2011 was $110,000 (original investment of $100,000 plus $10,000 of net income not withdrawn). During2012 the company's expenses exceed revenues by $125,000 and there were no draws or additional investments by the owner. The owner's equity at the end of2012 would be a negative $15,000.The negative amount of owner's equity also means that the company's balance sheet will report liability amounts greater than the amount of assets. The company could operate under those conditions if its assets are turning to cash before the liabilities need to be paid.

mohamed sabeen
من قبل mohamed sabeen , QHSE Manager , Novus catering service

Owner's equity = Owner's capital + Retained earningsA negative owner's equity could mean his drawings exceeded his capital or the business has made losses or both. You should check the income statement to confirm that a loss was incurred. And if everything is indeed correct, then yes, you can have a negative balance under OE.

Mohammed Al-Abdulmohsen
من قبل Mohammed Al-Abdulmohsen , Credit Analyst , Saudi Industrial Development Fund

It means that the company’s balance sheet will report liability amounts greater than the amount of assets. Also, in a sole proprietorship, if the owner drawings exceeded his capital or the business has made losses or both. Therefore, yes OE can be a negative amount. 

Mohammed Salim Allana
من قبل Mohammed Salim Allana , Compliance and Assurance Manager , United Arab Bank

As explained by Mohammed, it is possible only in extreme situation, which is not permitted by regulators, in case of limited liability companies. Where company's external borrowings/debts are more than the owners withdrawals.

Nirav Dadhania
من قبل Nirav Dadhania , Assistant General Manager (AGM) - Finance , JJPV Solar Pvt Ltd

Yes its possible.  But the picture would have been more realistic if debt was also considered.

 

Khaled Abdelrehim ACCA DipIFR CMA
من قبل Khaled Abdelrehim ACCA DipIFR CMA , Financial Analysis Assistant General Manager , Khalda Petroleum Company

Yes, possible.

Sadr ul Hoda
من قبل Sadr ul Hoda , Head Of General Accounting , NASSER BIN KHALED AL-THANI AND SONS HOLDING COMPANY W.L.L.

yes it is possible.

Ali Diab
من قبل Ali Diab , Finance Director , DH Industries Ltd

Theoritically it is possible, but practically if it happens that means the absence of business planning, budgeting and the financial structure analysis.

Mohammed Hussain Shah
من قبل Mohammed Hussain Shah , Finance Manager , Al-Naba Contracting Co. Ltd

In a situation where assets are lesser than the liabilities. The excess of liabilities over assets goes in financing the negeative equity. If this happens due to losses , yes some legal impications are there.

Kasif Iqbal
من قبل Kasif Iqbal , Executive Assistant to MD & Pro-Chancellor , Skyline University Nigeria

Indeed its possible to have the owners equity in negative. Owners equity is the capital invested to startup the business. During the business operations if the owner starts incurring losses, the balancesheet turns to be negative which impacts the owners equity as well.

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