Question

Larry's Kite Shack operates on the Florida beaches during the tourist season. Last year, Larry sold $25,000 worth of kites. His cost of goods was $7,000, and he paid himself a salary of $20,000. On an income statement, Larry's business would have a(n): Group of answer choices net loss gross expense negative revenue net profit negative retained earning

Answer 1

Negative net profit $2,000 to be reported in the profit or loss statement. also this will be reported as current years retained earnings this negative figure will lower the previous retained earnings balance.

What is Revenue?  

Revenue is the amount that an organization receives for the goods sold or services provided, the revenue is the core reason for the company to exist, revenue is generated and paid by the customers of the organization.

It is highly followed that the expenses of a company is lower than the revenue it generates. However in the given question Larry seems to be the sole trader and that is why he is paying the salary to himself.

The loss is calculated as

Gross profit is calculated first as

revenue - Cost of goods sold i.e $25000 - $7000 = $18000

then net loss = Gross profit - Administrative expenses  i.e $18000 - $20000 = -$2000.

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