Listed below are several transactions that took place during the first two years of operations for the law firm of Perez Associates.

	Year 1	Year 2
Amounts billed to clients for services rendered	$ 174,000	$ 224,000
Cash collected from clients	158,000	188,000
Cash disbursements:
Salaries paid to employees for services rendered during the year	88,000	98,000
Utilities	29,000	38,000
Purchase of insurance policy	59,400	0

In addition, you learn that the firm incurred utility costs of $34,000 in year 1, that there were no liabilities at the end of year 2, no anticipated bad debts on receivables, and that the insurance policy covers a three-year period.

Required:

1. & 3. Calculate the net operating cash flow for years 1 and 2 and determine the amount of receivables from clients that the firm would show in its year 1 and year 2 balance sheets prepared according to the accrual accounting model.

2. Prepare an income statement for each year according to the accrual accounting model.

Perez Associates
Income Statements
	Year 1	Year 2
Revenues
Expenses:
Salaries
Utilities
Insurance
Net income (loss)