Chapter 7, Problem 7SP

To determine

Accounts Receivable:

It refers to the amount that is to be received by a company for providing goods and services on credit. It is an asset account.

Bad Debts:

It refers to the amount that was expected to be received on credit sales but went uncollectible. It is a loss to the company.

Journal Entry:

It means record of financial data related to business transactions in a journal in a manner so that debit equals credit. It provides an audit trail to the auditor and a means to analyze the effects of transactions to an organization’s financial health.

Rules of Journal Entry:

• Assets: Increase in asset should be debit and decrease should be credit.
• Liabilities: Increase in liabilities should be credit and decrease should be debit.
• Equity: Increase in Equity should be credit and decrease should be debit.
• Expense: Increase in expense should be debit and decrease should be credit.
• Revenue: Increase in revenue should be credit and decrease should be debit.

1.

To prepare: Adjustment entry to record the given transactions for uncollectible.

2.

To determine

To prepare: Adjustment entry when there is debit balance of allowance for doubtful for accounts using the facts in 1b.

3.

To determine

To explain: Whether the company should consider the direct write off method of accounting for bad debts expense rather than one of the allowance methods considered in part 1.