Chapter 9, Problem 4PSA

(a)

To determine

Bad debts:

Bad debts can be defined as those accounts receivable that a firm does not expect to collect and has written off to its income statement under the head, expense. They are also termed as irrecoverable debts.

Bad debts are considered as expenses, as they are not anticipated to generate any financial benefits in the future. It leads to a corresponding decrease in the balance of accounts receivable on the balance sheet, as the bad debts are no longer an asset.

Procedure for debiting and crediting an account:

• Increase in assets account, increase in expenses account, and decrease in liabilities account should be debited.
• Decrease in assets account, increase in revenue account, and increase in liabilities account should be credited.

All transactions affect the accounting equation that is displayed below. The accounting equation should always remain in balance at the time of recording a business transaction:

$\boxed{\text{Asset = Liabilities + Stockholders' equity}}$

To determine: The total estimated bad debts.

(b)

To determine

To prepare: Adjusting entry.

(c)

To determine

To prepare: The journal entry for uncollectible account receivable.

(d)

To determine

To prepare: The journal entries to record the restore the account and record the cash collection.

(e)

To determine

To ascertain: The bad debts estimates if R Inc. had used 4% percent of accounts receivable and the advantage of using aging the accounts receivable over a percentage to total accounts receivable.