Comment on Dr. Hendley's statement that the difference between the opening bank balance ($30,000) and the January balance ($75,000) is pure profit.
Dr. Hendley's statement that the difference between the opening bank balance of $30,000 and the January balance of $75,000 is pure profit is inaccurate. It is essential to understand the concept of profit and how to calculate it correctly.
Profit is the financial gain obtained after deducting expenses from revenues. It represents the surplus left after covering all costs associated with producing goods or providing services. It is not solely determined by the difference between two bank balances, as Dr. Hendley suggests.
To clarify this, we need additional information about the business's transactions between the opening bank balance and the January balance. Factors that affect profit include:
1. Revenue: The total income generated from sales or services provided.
2. Expenses: The costs incurred to produce goods or deliver services, such as rent, salaries, utilities, and raw materials.
3. Investments or withdrawals: Any additional capital added to or withdrawn from the business during the period.
To calculate the actual profit, we need to consider all these elements and their impact on the business's financial position. The difference between two bank balances alone does not provide an accurate indication of profit.
To accurately calculate profit, you would need to gather information about the revenue earned, subtract all expenses incurred during the period, and account for any investments or withdrawals made. The resulting figure would represent the actual profit earned during that period.