Concept explainers
Accrual accounting
• LO1–2
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 clients for services rendered | $170,000 | $220,000 |
Cash collected from clients | 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 firm incurred utility costs of $35,000 in year 1, that there were no liabilities at the end of year 2, no anticipated
Required:
1. Calculate the net operating
2. Prepare an income statement for each year similar to Illustration 1–4 according to the accrual accounting model.
3. Determine the amount of receivables from clients that the firm would show in its year 1 and year 2
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Chapter 1 Solutions
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