Question

Marilyn Johnson, Attorney at Law

Income Statement

For Month Ended January 31, 2019

Revenue: Legal Fees Earned $ 4,000.00

Expenses: Salary Expense $ 1,500.00

Rent Expense 600.00

Utilities Expense 250.00

Total Expenses 2,350.00

Net Income: $ 1,650.00

Based on the income statement for Marilyn Johnson, Attorney at Law, please answer the following questions.

1. In your own words based on the income statement that is above, please explain the purpose and function of the income statement.

2. According to the statement, is Ms. Johnson’s income higher than her expenses; is her income lower than her expenses; or is her income equal to her expenses? Please explain your answer with examples from the income statement.

3. Calculate the percentage share of each type of expense in total expenses (The share of salary expense, the share of rent expense and the share of utilities expense). Which expense has the highest share?

4. Are there any expenses that she can eliminate so that her income could be higher and her expenses lower? If so, which expenses can she eliminate and how can she eliminate them? Use examples from the income statement.

5. What would you suggest to Ms. Johnson to increase her revenue? Give specific examples that will work for Ms. Johnson as an attorney.

Answer 1

1.. The main purpose of drawing up an Income statement by any individual,professional or a business firm is to :

assess the profitability or otherwise of his her business operations

and to decide upon ways to maintain / improve efficiency of operations.

Function of the income statement :

to know the quantum & also different types of revenues

to know the total quantum of expenses incurred as also that under different heads, as in the given case,salary expense,rent & utility expense

to know the profit /loss from this operation--ie. Net income of $ 1650 , in the above business.

2.According to the statement, is Ms. Johnson’s income higher than her expenses

Her income,ie. Legal fees earned= $ 4000 and her expenses total $ 2350

so, her income is 4000-2350=$ 1650 more than her expenses & that is called net income, that is total income is netted with total expenses.

3.Marilyn Johnson, Attorney at Law
Income Statement
For Month Ended January 31, 2019
Revenue:			% of Total expenses( $ 2350)
Legal Fees Earned		4000
Expenses:
Salary Expense	1500		63.83%
Rent Expense	600		25.53%
Utilities Expense	250		10.64%
Total Expenses		2350
Net Income: $ 1,650.00		1650
Salary Expense has the highest share of 63.83%

4. None of the 3 expenses can be totally eliminated.

She can try to reduce them, for example,

she can reduce her staff to some extent, when salaries expense will be reduced.

or, she can move to a smaller space, where rent expense can be reduced.

or, she can try to control expenses towards utilities

All of the above, will increase her income.

5.Ms. Johnson can increase her clientielle ,

ie. Look for more no.of clients --increase her reach with the help of friends & existing clients

or, diversify her area /branch of work, ie . Type of legal cases, she handles

or add some more services , for existing clients, likeoffering photocopying facilities for her clients, at her place, which will increase her revenues--of course, salary to the person ,will count.