Question

Springer Company had the following transactions in​ August: Earned $3,600 of revenues on​ account; collected $5,300 from a customer for services provided last​ month; incurred $840 of repair expense and paid​ cash; paid $200 for rent that it owed from the previous month. What is the net income in​ August?

Answer 1

Net income in​ August = $2,760

Step-by-step explanation:

This is an example of matching concept in accounting which states revenue must recorded in the period in which it is earned whether or not cash is received, and cost must recorded in the period in which it is incurred whether or that cash is paid.

The net income in August can be calculated by considering only income earned in August and expenses incurred in August whether or not cash exchanges hands. Therefore, net income in August can be calculated as follows:

Net income in August = Revenue earned on account - Repair expense incurred and paid in cash = $3,600 - $840 = $2,760

Therefore, the net income in​ August is $2,760.

Note: Both $5,300 collected from a customer for services provided last​ month and $200 paid for rent that it owed from the previous month are not considered in the calculation because they only shows that cash exchanged but they are not part of the revenue and expenses for August.