The transactions and closing entry are shown in the general journal as follows:
Illustration 4: Journal entries for illustration #1 about bad debt expense
| Event No |
Account titles |
Debit |
Credit |
1 |
Accounts Receivable |
3,000 |
|
|
Service Revenue |
|
3,000 |
2 |
Cash |
1,800 |
|
|
Accounts Receivable |
|
1,800 |
3 |
Bad Debts Expense |
200 |
|
|
Allowance for Doubtful Accounts |
|
200 |
Closing |
Service Revenue |
3,000 |
|
entry |
Bad Debts Expense |
|
200 |
|
Retained Earnings |
|
2,800 |
The transactions and closing entry are shown in T-accounts as follows:
Illustration 5: T-accounts for illustration #1 about bad debt expense
| Assets |
= |
Liabilities |
+ |
Equity |
||
| Cash |
|
0 |
|
Retained Earnings |
||
| (2) 1,800 |
|
|
|
|
|
(cl.) 2,800 |
| Bal. 1,800 |
|
|
|
|
|
Bal. 2,800 |
|
|
|
|
|
|
||
| Accounts Receivable |
|
|
|
Services Revenue |
||
| (1) 3,000 |
(2) 1,800 |
|
|
(cl.) 3,000 |
(1) 3,000 |
|
| Bal 1,200 |
|
|
|
|
|
Bal. 0 |
|
|
|
|
|
|
||
| Allowance for Doubtful |
|
|
|
Bad Debts Expense |
||
| Accounts |
|
|
|
(3) 200 |
(cl.) 200 |
|
|
|
(3) 200 |
|
|
|
Bal. 0 |
|
|
Bal. 200 |
|
|
|
|
|
Three financial statements are shown below in the horizontal model:
Illustration 6: Financial statements for illustration #1 in the horizontal model
Financial Statements for 20X7 |
|||||
| Income Statement |
Balance Sheet |
Statement of Cash Flows |
|||
|
|
|
|
|
|
|
| Service Revenue |
3,000 |
Assets |
|
Operating Activities: |
|
| Bad Debt Expense |
(200) |
Cash |
1,800 |
Cash Receipts |
1,800 |
|
|
|
Accounts Receivable |
1,200 |
|
|
| Net Income |
2,800 |
Less: Allowance |
(200) |
Investing Activities: |
0 |
|
|
|
Net Realizable Value |
1,000 |
Financing Activities: |
0 |
|
|
|
Total Assets |
2,800 |
|
|
|
|
|
|
|
Net Change in Cash |
1,800 |
|
|
|
Equity |
|
|
|
|
|
|
Retained Earnings |
2,800 |
Beginning Cash Balance |
0 |
|
|
|
|
|
Ending Cash Balance |
1,800 |
|
|
|
|
|
|
|
