Question

Rosie Dry Cleaning was started on January 1, Year 1. It experienced the following events during its first two years of operation:

Events Affecting Year 1

1. Provided $45,000 of cleaning services on account.
2. Collected $39,000 cash from accounts receivable.
3. Adjusted the accounting records to reflect the estimate that uncollectible accounts expense would be 1 percent of the cleaning revenue on account.

Events Affecting Year 2

1. Wrote off a $300 account receivable that was determined to be uncollectible.
2. Provided $62,000 of cleaning services on account.
3. Collected $61,000 cash from accounts receivable.
4. Adjusted the accounting records to reflect the estimate that uncollectible accounts expense would be 1 percent of the cleaning revenue on account.

Required
a. Record the events for Year 1 and Year 2 in T-accounts.

Answer 1

Solution:

Year 1

R D Cleaning
Accounting equation for year 1
balance sheet
	Assets	=	Equity	Account Title for Retained
Event	cash	+	Accounts	-	allowance	=	Retaine earinings	Earnings
			Receivable
1			$45,000				$45,000	Sales
2	$39,000		-$39,000				$0
3					$450		-$450	Uncollectible accounts expense
Balance	$39,000		$6,000		$450		$44,550

For the year 1
Net income for year 1	$44,550
Net cash flow fro operating activities for year 1	$39,000
balance of accounts receivable at the end of year 1	$6,000
Net realizable value of accounts receivable at the end of year 1
($6,000 - $450)	$5,550

Year 2

R D Cleaning
Accounting equation for year 1
balance sheet
	Assets	=	Equity	Account Title for Retained
Event	cash	+	Accounts	-	allowance	=	Retaine earinings	Earnings
			Receivable
1			-$300		-$300		$0
2			$62,000				$62,000	Sales
3	$61,000		-$61,000				$0
4					$620		-$620	Uncollectible accounts expense
Balance	$61,000		$7,000		$320		$61,380

For the year 2
Net income for year 2	$61,380
Net cash flow fro operating activities for year 2	$61,000
balance of accounts receivable at the end of year 2 ($6,000 + $700)	$6,700
Net realizable value of accounts receivable at the end of year 2
($6,000 + $700)-($450 +$320)	$5,930