Reference no: EM132870193

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 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 bad debts on receivables, and that the insurance policy covers a three-year period.

Required -

1. Calculate the net operating cash flow for years 1 and 2.

2. Prepare 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 balance sheets prepared according to the accrual accounting model.