Chapter 9, Problem 9.1BYP

(a)

To determine

Accounting for Receivables:

Receivables are defined as the amounts that are due to a firm by its customers and other parties. Receivables include all those assets that arise due to the primary operations of a firm and those representing cash that is to be collected from all external parties who owe money to the firm.

Receivables are broadly categorized into trade-receivables and non-trade receivables. Trade receivables refer to those receivables that occur due to the sale of goods and services in the normal course of business. Non-trade receivables refer to the amounts that occur due to third parties from transactions outside the primary course of business.

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.

To prepare: The accounts receivable aging schedule for R Company.

(b)

To determine

To compute: The amount of the year-end adjustment necessary to bring Allowance for Doubtful Accounts to the balance indicated by the age analysis and prepare the journal entry to adjust the accounting records.

(c)

To determine

To identify: The steps R Company might consider to improve the accounts receivable situation and evaluate each step in terms of the risks and costs involved.