I was looking at the financials of a Pot company and saw that over the past years, their total assets as well as their equity increased while at the same time, they were losing money and their net income was in the red. Can someone explain how that is possible?

Thanks in advance for the answer!!


I don't know about that company specifically, but an equity investment would have that effect.

When you, co-owners or investors make an equity investment in your company, you increase the amount of additional paid-in capital under owner's equity. Because your company's balance sheet must balance, the cash used to pay for the equity investment gets recorded as cash under short-term assets. If an investor contributed an asset, then the asset's value gets recorded under long-term assets.


You make a $50,000 equity investment in your company. You record this as a $50,000 increase in additional paid-in capital under owner's equity. You also record a $50,000 increase in cash under assets. An investor also contributed a $30,000 equity investment in the form of a used printing press. You record this investment in two locations on the balance sheet. You increase additional paid-in capital by $30,000 and add printing press, $30,000 as a long-term asset. The net effect of both investments on the balance sheet is an increase in both total assets and owner's equity of $80,000.


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