A contractor receives $8,000 in June for the June work and also receives $3,000 for work done in May. The contractor pays $5,000 of the June expenses in June, and also pays $1,000 of May expenses. Disregarding any other income or costs, how much net income will the contractor recognize in June?

Rationale

$3,000 is the net income the contractor will recognize in June.

The contractor recognizes income based on the revenue earned in June, which includes the $8,000 for June work and $3,000 for May work, totaling $11,000. After accounting for expenses of $5,000 for June and $1,000 for May, the net income calculated is $11,000 - $6,000 = $5,000. However, since only the revenue earned in June ($8,000) is relevant for June's net income, the resulting net income is $3,000 when considering the expenses incurred.

A ($2,000) YOUR ANSWER

This figure inaccurately represents the contractor's net income for June. It does not take into account the total revenue of $11,000 from both May and June, nor does it accurately reflect the expenses deducted. Thus, it fails to capture the true net income calculation.

B ($3,000) CORRECT

This is the correct calculation of net income for June. The contractor's income of $8,000 for June minus the $5,000 June expenses equals a net income of $3,000. The recognition of the $3,000 from May work does not apply to June's net income but rather reflects cash flow.

C ($4,000) YOUR ANSWER

This amount misrepresents the contractor's earnings by not accurately deducting the total expenses from the revenue recognized. The calculation should reflect a total of $11,000 in income and $6,000 in expenses, resulting in a net income of $5,000, not $4,000.

D ($5,000) YOUR ANSWER

While this number represents the overall net income when considering all received income and expenses together, it does not correctly reflect the income recognized specifically for June. Net income for June alone should only include June's revenue and expenses.

Conclusion

The contractor's net income recognized in June is $3,000, derived from the June revenue of $8,000 after deducting June expenses of $5,000. This calculation demonstrates the importance of recognizing income and expenses within the appropriate accounting period, ensuring accurate financial reporting and analysis.

A contractor receives $8,000 in June for the June work and also receives $3,000 for work done in May. The contractor pays $5,000 of the June expenses in June, and also pays $1,000 of May expenses. Disregarding any other income or costs, how much net income will the contractor recognize in June?

$3,000 is the net income the contractor will recognize in June.

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