$ $

dr cr
82000
Accounts receivable
82000
Sales

Sales revenue for services provided

Cash 52700
52700
Accounts receivable

Cash received from debtors

Salaries 26000
bank 26000

salaries paid

2645
Allowance for bad debts
2645
accounts receivable

allowance made for uncollectable debtors

The journals were recorded for illustration purposes to understand better the accounting
equation

Components of Shareholder Equity

Retained earnings are part of shareholder equity and are the percentage of net earnings
that were not paid to shareholders as dividends. Think of retained earnings as savings since
it represents a cumulative total of profits that have been saved and put aside or retained for
future use. Retained earnings grow larger over time as the company continues to reinvest a
portion of its income. This is the reason why expenses and income are recorded under
owner’s equity in this scenario in the accounting equation below.

assets
Things that are resources owned by a company and which have future economic value that
can be measured and can be expressed in dollars. Examples include cash,
investments, accounts receivable, inventory, supplies, land, buildings, equipment, and
vehicles

liability
In financial accounting, a liability is defined as the future sacrifices of economic benefits that
the entity is obliged to make to other entities as a result of past transactions or other past
events, the settlement of which may result in the transfer or use of assets, provision of
services or other yielding of economic benefits in the future.

 There is one type of income from sales revenue

 Expenses are made up of salaries and allowance for bad debts

Accounting equation: A(Assets)= O(Owners equity) + L(Liability)

A= 0+ L
Accounts receivable 82000
(52700)
(2645)
Sales 82000
Bank 52700
(26000)
salaries (26000)
Allowance for bad debts (2645)

schedule:

Number of Days Past Due Amount Percent Likely to Be Uncollectible Allowance Balance

Current $ 9,500 0.01 95

0-30 4,000 0.05 200

31-60 2,500 0.10 250

61-90 2,000 0.30 600

Over 90 days 3,000 0.50 1500

 Total allowance for bad debts 2645

$
Sales revenue----------------------------------------------------------------------------82000
Expenses (28645)

26000
2645

Salaries-------------------------------------------------------------------------------
Allowance for bad debts---------------------------------------------------------

Income for the year 53355