Comment on Dr. Cousins’ statement that the difference between the opening bank balance ($25,000) and the July statement balance ($80,000) is pure profit.

Comment on Dr. Cousins’ statement that the difference between the opening bank balance ($25,000) and the July statement balance ($80,000) is pure profit.

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February 16, 2022
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On January 1, 20Y5, Dr. Marcie Cousins established Health-Wise Medical, a medical practice organized as a corporation. The following conversation occurred the following August between Dr. Cousins and a former medical school classmate, Dr. Avi Abu, at an American Medical

Association convention in Seattle:

Dr. Abu: Marcie, good to see you again. Why didn’t you call when you were in Miami? We could have had dinner together.

Dr. Cousins: Actually, I never made it to Miami this year. My husband and kids went up to our Vail condo twice, but I got stuck in Jacksonville. I opened a new consulting practice this January and haven’t had any time for myself since.

Dr. Abu: I heard about it…Health…something…right?

Dr. Cousins: Yes, Health-Wise Medical. My husband chose the name.

Dr. Abu: I’ve thought about doing something like that. Are you making any money? I mean, is it worth your time?

Dr. Cousins: You wouldn’t believe it. I started by opening a bank account with $25,000, and my July bank statement has a balance of $80,000. Not bad for six monthsβ€”all pure profit.

Dr. Abu: Maybe I’ll try it in Miami! Let’s have breakfast together tomorrow and you can fill me in on the details.

Comment on Dr. Cousins’ statement that the difference between the opening bank balance ($25,000) and the July statement balance ($80,000) is pure profit.

Answer and ExplanationSolution by a verified expert

Here is a tip:
Initial investment made by owner is not considered as net income.

Explanation
Net income is a measurement for the profitability of the business. Net income is calculated by subtracting the total expenses from total revenues. All financial statement (except statement of cash flows) should be prepared in adherence to the accrual principle of accounting. An increase in cash is not considered as profit because cash may be increased due to money borrowed from third parties, accrual income and deferred payment received. Therefore, the difference between the bank balances is not considered as net income for the month.

Verified Answer
This is a sample response and actual answers may vary.

The difference between the opening bank balance and the bank balance at the end of the month is not considered profit or net income for the month.

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