Cash collected from customers, $340,000; Cash paid for rent, $40,000; Cash paid

Question

Cash collected from customers, $340,000; Cash paid for rent, $40,000; Cash paid to employees for services rendered during the year, $120,000; Cash paid for utilities, $50,000.

     In addition, you determine that customers owed the company $60,000 at the end of the year and no bad debts were anticipated. Also, the company owed the gas and electric company $2,000 at year-end, and the rent payment was for a two-year period.

What is a net income

Cash flows during the first year of operations for the Harman-Kardon Consulting Company were as follows:

Cash collected from customers, $340,000; Cash paid for rent, $40,000; Cash paid to employees for services rendered during the year, $120,000; Cash paid for utilities, $50,000.

     In addition, you determine that customers owed the company $60,000 at the end of the year and no bad debts were anticipated. Also, the company owed the gas and electric company $2,000 at year-end, and the rent payment was for a two-year period.

What is a net income

Explanation / Answer

Revenues
Cash collected from customers, $330,000
customers owed the company $58,000
= $388,000 total revenues

Expenses
Cash paid for rent, $38,000 / 2 = $19,000
Cash paid to employees for services rendered during the year, $118,000
Cash paid for utilities, $48,000
the company owed the gas and electric company $1,800
= $186,800 total expenses

388,000 - 186,800 = $201,200 net income

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