Technology Mart had the following revenue and expenses during the month ended July 31:
Fees for computer repairs: $36,100
Advertising expense: $4,600
Salaries expense: $17,400
Telephone expense: $1,500
Fees for printer repairs: $4,850
Utilities expense: $750
Did the firm earn a net income or incur a net loss for the period? What was the amount?
Answer (2)
Technology Mart earned a net income of $16,700 for the month ended July 31. This is calculated by subtracting total expenses of $24,250 from total revenue of $40,950. Since the result is positive, it shows that the firm made a profit.
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Calculate total revenue: T o t a lR e v e n u e = $36 , 100 + $4 , 850 = $40 , 950 .
Calculate total expenses: T o t a lE x p e n ses = $4 , 600 + $17 , 400 + $1 , 500 + $750 = $24 , 250 .
Calculate net income or loss: N e t I n co m eor L oss = $40 , 950 − $24 , 250 = $16 , 700 .
The firm earned a net income of $16 , 700 .
Explanation
Understanding the Problem We are given the revenue and expenses for Technology Mart for the month ended July 31. We need to determine if the firm earned a net income or incurred a net loss for the period, and what the amount was.
Calculating Total Revenue First, we need to calculate the total revenue. The total revenue is the sum of the fees for computer repairs and the fees for printer repairs. T o t a lR e v e n u e = F ees f orco m p u t erre p ai rs + F ees f or p r in t erre p ai rs T o t a lR e v e n u e = $36 , 100 + $4 , 850 = $40 , 950 So, the total revenue is $40,950.
Calculating Total Expenses Next, we need to calculate the total expenses. The total expenses are the sum of the advertising expense, salaries expense, telephone expense, and utilities expense. T o t a lE x p e n ses = A d v er t i s in g e x p e n se + S a l a r i ese x p e n se + T e l e p h o n ee x p e n se + U t i l i t i ese x p e n se T o t a lE x p e n ses = $4 , 600 + $17 , 400 + $1 , 500 + $750 = $24 , 250 So, the total expenses are $24,250.
Calculating Net Income or Loss Now, we can calculate the net income or net loss. The net income or net loss is the total revenue minus the total expenses. N e t I n co m eor L oss = T o t a lR e v e n u e − T o t a lE x p e n ses N e t I n co m eor L oss = $40 , 950 − $24 , 250 = $16 , 700 Since the net income or loss is positive ($16,700 > 0), the firm earned a net income.
Conclusion Therefore, Technology Mart earned a net income of $16,700 for the month ended July 31.
Examples
Understanding net income and net loss is crucial for businesses to assess their financial performance. For example, if a small bakery wants to determine its profitability for the month, it would calculate its total revenue from selling baked goods and subtract its total expenses, such as ingredients, rent, and utilities. If the result is positive, the bakery has a net income, indicating a profit. Conversely, if the result is negative, the bakery has a net loss, signaling that expenses exceeded revenue. This information helps the bakery owner make informed decisions about pricing, cost management, and overall business strategy.
