How to calculate net income from assets liabilities and equity?

Accounting Dec 16, 2020

Expert Solution

We know that Assets - Liabilities = Equity. This is the basic accounting equation.
When we know what the changes in assets and liabilities were in a period, we can calculate the changes in equity.
We also know that in most entities, equity is made up of common stock and retained earnings.
After we have calculated the changes in equity, all that remains is to deduct the changes that were caused by increases or decreases in common stock and dividends declares, and we have arrived at net income.

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