Chapter 8, Problem 8.4BPE

(a)

To determine

Accounts receivable

Accounts receivable refers to the amounts to be received within a short period from customers upon the sale of goods and services on account. In other words, accounts receivable are amounts customers owe to the business. Accounts receivable is an asset of a business.

Allowance method:

It is a method for accounting bad debt expense, where amount of uncollectible accounts receivables are estimated and recorded at the end of particular period. Under this method, bad debts expenses are estimated and recorded prior to the occurrence of actual bad debt, in compliance with matching principle by using the allowance for doubtful account.

Two methods to estimate uncollectible accounts under allowance method are:

1. 1. Percentage of sales method, and
2. 2. Analysis of receivables method.

Analysis of receivables method:

A method of determining the estimated uncollectible receivables based on the age of individual accounts receivable is known as analysis of receivables method. This method is otherwise known as aging of receivables method. Under analysis of receivables method, estimated bad debts would be treated as the desired adjusted balance for allowance for doubtful accounts.

Allowance for doubtful account is a contra asset account, whose normal balance is a credit balance.

The amount of the adjusting entry for uncollectible accounts, under analysis of receivables method.

(b)

To determine

The adjusted balances of accounts receivable, allowance for doubtful accounts, and bad debt expense.

(c)

To determine

Net realizable value of the accounts receivable.