Q.5 If revenue was 545,000, expenses were 537,500 and the owner’s withdrawals were 510,000, the amount of net profit or net loss would be A) 545,000 net profit B) 57,500 net profit $37,500 net le D) 52.500 net loss
The Correct Answer and Explanation is :
To determine the net profit or net loss, we need to subtract total expenses from total revenue. The owner’s withdrawals do not affect this calculation, as they are distributions of profit and not considered an expense.
Calculation:
- Revenue: $545,000
- Expenses: $537,500
Net Profit = Revenue – Expenses
Net Profit = $545,000 – $537,500 = $7,500
Therefore, the correct answer is B) $7,500 net profit.
Explanation:
Net profit, also known as net income, is the amount remaining after all expenses are subtracted from total revenue. It represents the company’s profitability over a specific period.
The formula to calculate net profit is:
Net Profit = Total Revenue – Total Expenses
In this scenario:
- Revenue: $545,000
- Expenses: $537,500
Subtracting expenses from revenue:
Net Profit = $545,000 – $537,500 = $7,500
The owner’s withdrawals of $510,000 are distributions of profit and do not impact the calculation of net profit. They are recorded separately in the equity section of the balance sheet and do not affect the income statement.
Understanding net profit is crucial for assessing a company’s financial health. A positive net profit indicates that the company is generating more revenue than expenses, which is essential for growth and sustainability. Conversely, a net loss would suggest that expenses exceed revenue, potentially leading to financial difficulties.
For a more detailed explanation of net profit and its calculation, you can refer to this resource: (Paddle)