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Exercise 7-2A Accounting for uncollectible accounts: allowance method LO 7-1

[The following information applies to the questions displayed below.]
  
Holmes Cleaning Service began operation on January 1, Year 1. The company experienced the following events for its first year of operations:

Events Affecting Year 1:

Provided $210,000 of cleaning services on account.

Collected $157,500 cash from accounts receivable.

Paid salaries of $38,000 for the year.

Adjusted the accounts to reflect management’s expectations that uncollectible accounts expense would be $1,300. The expense was determined using the percent of revenue method.

Exercise 7-2A Part c

c. Prepare an income statement, balance sheet, and statement of cash flows for Year 1. (Statement of Cash Flows and Balance Sheet only: Items to be deducted must be indicated with a minus sign.)
  

Answer 1

Income statement for year

Revenue :	Amount
Revenue from clesning	210000
A Total revenue	210000
B. Cost
Salaries	38000
Bad debt exp.	1300
B . Total cost
Profit (A-B)	170700

Balance sheet for year 1

Assets :
Current assets
Cash	119500
Accounts receivable. 52500 Less : bad debt allowance. (1300)	51200
Total Current assets	170700
Fixed assets	0
Total assets
Liabilities and equity
Liabilities	0
Owners equity (retained earnings)	170700
Liabilities & equity	170700

Cash flow statement for the year 1 (using direct method)

Particulars	amount
A. Cash flow from operating activities
Cash collected from customers	157500
Payment of salaries	(38000)
Cash generated from operating a tivities	119500
B . Cash flow from investing activities	0
C . Cash flow from financing activities	0
Net cash inflow	119500
Beginning Cash balance	0
Ending Cash balance	119509