Question
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
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.
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