Impacts to the Profit and Loss Statement
Tim’s Coffee Shoppe has been very successful lately with the local businesses around the shop and the large university. Tim seems to get most of his business from college students and people working in the downtown area. In Tim’s income statement, it shows that his highest expense is supplies for the coffee shop. His second highest expense is salaries. Then next are taxes, rent, depreciation, lease, insurance and interest in that following order. Tim’s Coffee Shoppe earned $400,527 in 2008 and his total expense were $326,016, which leaves him with a net income of $74,511. So if there are local businesses moving in around Tim’s Coffee Shoppe, will his business increase and what does this mean for his expenses, income and so forth?
Granted, Tim’s business will pick up greatly with new businesses moving into the area. Therefore, Tim will probably earn more income, yet this means more expenses. We learned that Tim’s highest expense is supplies. If Tim gains more business, this means he will need more supplies and in return, spend more money on supplies. The second highest expense was salaries. If Tim gains more business, he may need to hire more employees to keep up with his growing business. This means Tim will have to pay more employees and this means his salaries expense will increase as well.
Tim’s business increase means expense increase. However, with Tim earning more income, he will have the money to pay for these increased expenses. I don’t see any of the expenses decreasing. It looks like most of the expenses will increases as stated early. However, it will not change much from Tim’s current income statement except for higher income and higher expenses. All in all, Tim will basically be earning and spending the same funds as he did before. He will gain more income from gaining more business, but his expenses will increase from gaining more business, therefore his net income will decrease from his income...
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