Register now or log in to join your professional community.
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the total owner's equity at the end of2011 was $110,000 (original investment of $100,000 plus $10,000 of net income not withdrawn).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.
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.
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.
Yes its possible. But the picture would have been more realistic if debt was also considered.
Yes, possible.
yes it is possible.
Theoritically it is possible, but practically if it happens that means the absence of business planning, budgeting and the financial structure analysis.
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.
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.
