Question

Holmes Cleaning Service began operation on January 1, 2018. The company experienced the following events for its first year of operations:

Events Affecting 2018:
Provided $170,000 of cleaning services on account.
Collected $127,500 cash from accounts receivable.
Paid salaries of $28,000 for the year.
Adjusted the accounts to reflect management's expectations that uncollectible accounts expense would be $1,900. The expense was determined using the percent of revenue method.

Prepare a statement of cash flows for 2018.

Answer 1

The firm's accounting profit can be calculated by subtracting the total expenses from the sales revenue. In this case, the accounting profit is $50,000.

Step-by-step explanation:

To calculate the firm's accounting profit, subtract the total expenses from the sales revenue. The total expenses include labor, capital, and materials. Accounting profit can be calculated as follows:

Accounting Profit = Sales Revenue - Total Expenses

In this case, the firm's sales revenue is $1 million, labor expenses are $600,000, capital expenses are $150,000, and material expenses are $200,000. Plugging these values into the formula, we get:

Accounting Profit = $1,000,000 - ($600,000 + $150,000 + $200,000) = $50,000