Question 12BE - Intermediate Accounting (Kieso)

Question

BE3-12 (L07) Kelly Company had cash receipts from customers in 2017 of \(142,000. Cash payments for operating expenses were \)97,000. Kelly has determined that at January 1, accounts receivable was \(13,000, and prepaid expenses were \)17,500. At December 31, accounts receivable was \(18,600, and prepaid expenses were \)23,200. Compute (a) service revenue and (b) operating expenses.

Step-by-Step Solution

Answer

(a) Service revenue is $147,600

(b) Operating expenses are $91,300

Meaning of Service Revenue and Operating Expenses

Revenue obtained by a business entity by providing services to the public is known as service revenue.

Operating expenses are costs incurred by a business entity in the course of running its daily operations.

Calculation of service revenue:

Particular	Amount $
Cash receipts from Customer	$142,000
Add: Accounts receivable at December 31	$18,600
Less: Accounts receivable at January 1	$(13,000)
Service Revenue	$147,600

Hence, the service revenue of Kelly company is $147,600

Calculation of operating expenses:

Particular	Amount $
Cash payments for operating expenses	$97,000
Add: Prepaid expenses at January 1	$17,500
Less: Prepaid expenses at December 31	$(23,200)
Service Revenue	$91,300

 

Hence, the Operating expenses of Kelly company are $91,300