Question

On August 1, 20Y7, Dr. Ruth Turner established SickCo, a medical practice organized as a professional corporation. The following conversation occurred the following February between Dr. Turner and a former medical school classmate, Dr. Shonna Rees, at an American Medical Association convention in New York City.

Dr. Rees: Ruth, good to see you again. Why didn't you call when you were in Denver? We could have had dinner together.

Dr. Turner: Actually, I never made it to Denver this year. My husband and kids went up to our Vail condo twice, but I got stuck in Fort Lauderdale. I opened a new consulting practice this August and haven't had any time for myself since.

Dr. Rees: I heard about it ... sick ... something ... right?

Dr. Turner: Yes, SickCo. My husband chose the name.

Dr. Rees: I thought about doing somethinglike that. Are you making any money? I mean, is it worth your time?

Dr. Turner: You wouldn't believe it. I started by opening a bank account with $45,000, and my January bank stateemnt shows a balance of $100,000. Not bad for six months--all pure profit.

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

Comment on Dr. Turner's statement that the dinfference between the opening bank balance ($45,000) and the January statement balance ($100,000) is pure profit.

Answer 1

Before knowing about whether the difference between the opening bank balance and closing balance is purely profit, we sould know in how many ways our bank balance increases. Our bank balance will increase in following cases

a) Income for our services received through bank transfer

b) Income received for our services in cash was deposited in bank

c) Received cash from any financial institution by way of loan.

d) Cash directly deposited by our debtors into our bank account

e) Interest credited by the bank on our balance in our account.

So, just the increase of bank balance shall not show the pure profit. The increase in bank balance by way of incomes from operating activities( sale of service or product) or financing activities ( interest received or dividend received etc...) only wil show the pure profit.

In the given case we cannot say the difference between the opening bank balance and closing balance is exactly pure profit, without providing remaining important details listed as above from point (a) to (e). But it may not be pure profit according to the above explanation.