Using the June transactions for Chris Bates’s rental property management business (fees earned $6,770 cash and $5,550 billed; rent $3,000; salaries $2,110; auto expense $670; miscellaneous expense $330; supplies used $1,000), determine the net income for June.

What you are trying to find

Net income measures profit for the month on an accrual basis: $$\text{Net income} = \text{Revenues} - \text{Expenses}$$ So we list which June transactions create revenue, and which create expenses.

Identify June revenues (earned this month)

Revenue comes from fees earned, whether collected in cash or billed (accounts receivable):

• Cash fees earned: $6{,}770
• Fees billed to customers: $5{,}550

Total revenues: $$6{,}770 + 5{,}550 = 12{,}320$$

Identify June expenses (costs used this month)

Expenses include the costs that helped generate June revenue:

• Rent expense: $3{,}000
• Salaries expense: $2{,}110
• Automobile expense: $670
• Miscellaneous expense: $330
• Supplies expense (supplies used): $1{,}000

Total expenses: $$3{,}000 + 2{,}110 + 670 + 330 + 1{,}000 = 7{,}110$$

Compute net income and handle non-expense items

Now subtract: $$\text{Net income} = 12{,}320 - 7{,}110 = 5{,}210$$ Items that do not affect net income:

• Issuing common stock ($43{,}000) is owner investment, not revenue.
• Paying creditors ($1{,}110) reduces a liability, not an expense.
• Paying dividends ($2{,}000) is a distribution to owners, not an expense.