Listed below are several transactions that took place during the first two years of operations...
Question:
Listed below are several transactions that took place during the first two years of operations for the law firm of Pete, Pete, and Roy.
| Year 1 | Year 2 | |
| Amounts billed to customers for services rendered | $170,000 | $220,000 |
| Cash collected from customers | $160,000 | $190,000 |
| Cash disbursements: | ||
| Salaries paid to employees for services rendered during the year | $90,000 | $100,000 |
| Utilities | $30,000 | $40,000 |
| Purchase of insurance policy | $60,000 | $0 |
In addition, you learn that the company incurred utility costs of $35,000 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.
Account Receivable:
Account receivable is a short term asset which is recorded on the balance sheet of a company. Account receivable is created when a company sell goods on credit.
Answer and Explanation: 1
1.
Statement of accounts receivable for Year 1:
| Particulars | Amount |
|---|---|
| Amount billed to customers | $170,000 |
| Less: Cash collected from customers | ($160,000) |
| Account receivable at the end of Year 1 | $10,000 |
Statement of accounts receivable for Year 2:
| Particulars | Amount |
|---|---|
| Accounts receivable at the beginning | $10,000 |
| Add: Amount billed to customers | $220,000 |
| Less: Cash collected from customers | ($190,000) |
| Accounts receivables at the end of the year | $40,000 |
2.
The income statement is as follows:
| Particulars | Year 1 | Year 2 |
|---|---|---|
| Revenues | $170,000 | $220,000 |
| Expenses: | ||
| Salaries | $90,000 | $100,000 |
| Utilities | $35,000 | $35,000 |
| Insurance | $20,000 | $20,000 |
| Net Income (Loss) | $25,000 | $65,000 |
3.
The operating cash flows are calculated as follows:
| Particulars | Year 1 | Year 2 |
|---|---|---|
| Cash collected from customers | $160,000 | $190,000 |
| Less: Cash disbursements | ||
| Salaries paid to employees | $90,000 | $100,000 |
| Utilities | $30,000 | $40,000 |
| Purchase of insurance policy | $60,000 | $0 |
| Net operating cash flow | ($20,000) | $50,000 |
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Accounts Receivable Journal Entries
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