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AS per the accounting equation
owners equity = assets- liabilities
if the total liabilities is more than the assets , the owner equity will be negative
it is possible, If a company reporting negative stockholders' equity were to liquidate, its stockholders would probably receive nothing in exchange for their original investments in the company's stock, though this depends on how much the company can earn by selling its remaining assets and settling any remaining..
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.
In 2008, a sole proprietorship was begun with the owner investing $100,000. During the years 2008 through 2011 the owner withdrew most of each year's net income. As a result, the total owner's equity at the end of 2011 was $110,000 (original investment of $100,000 plus $10,000 of net income not withdrawn). During 2012 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 of 2012 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.
Yes possible
If owner has withdrawn whole amt. of profits and later loss exceeds the capital contributions.
OR he kept profit in owners equity but later losses are more than Capital contribution and profits.
