Final answer:
If a company has $100,000 in sales and $80,000 in expenses, it will have an increase in equity by $20,000. Similarly, a firm with $1 million in sales and a total of $950,000 in various expenses would have an accounting profit of $50,000.
Step-by-step explanation:
If a company has $100,000 in sales and $80,000 in expenses, this will have an increase impact on equity. When we subtract the expenses from the sales, we get the net income which is $20,000 ($100,000 - $80,000 = $20,000). This net income will be added to the owner's equity as it represents the profit made by the company during a certain period.
In reference to the self-check question provided: A firm that had sales revenue of $1 million last year and spent $600,000 on labor, $150,000 on capital, and $200,000 on materials, would have an accounting profit calculated by subtracting the total expenses from the total sales revenue. The accounting profit would be $50,000 ($1 million - $600,000 - $150,000 - $200,000).