The following are all of the accounts of Mean Green Company that have a balance at the end of August, the company's first month of operation:
Accounts receivable $11,000
Cash $10,100
Equipment 39,700
Advertising expense 3,000
Service revenues earned 32,000
Accounts payable 13,800
Rent expense 1,500
J. Mullins, withdrawals 2,000
Office supplies 2,300
Salaries expense 9,000
Notes payable 22,500
J. Mullins, capital 10,300
All accounts have normal balances. a) Calculate net income.____________________________________
To calculate net income, we need to determine the total revenues earned and subtract the total expenses.
Total Revenues Earned: $32,000 (Service revenues earned)
Total Expenses:
- Advertising expense: $3,000
- Rent expense: $1,500
- Salaries expense: $9,000
Total Expenses: $3,000 + $1,500 + $9,000 = $13,500
Net Income = Total Revenues Earned - Total Expenses
Net Income = $32,000 - $13,500
Net Income = $18,500
To calculate net income, we need to compare the company's revenues with its expenses.
Revenue: In this case, the relevant revenue account is "Service revenues earned" with a balance of $32,000.
Expenses: We need to add up all the expense accounts:
- Advertising expense: $3,000
- Rent expense: $1,500
- Salaries expense: $9,000
Net Income Calculation:
Net Income = Revenue - Expenses
Revenue = $32,000
Expenses = $3,000 + $1,500 + $9,000 = $13,500
Net Income = $32,000 - $13,500 = $18,500
Therefore, the net income for Mean Green Company for the first month of operation is $18,500.