7.The practice of reestablishing a previously written off account, then recording its collection as a payment onaccount, reflects a complete record of account activity. Sucha record provides an accurate picture of the source of cashflows and improves the customer’s credit history.8.Factors for use in estimating bad debts include:(1) the percentage of uncollectible accounts from years'past.(2) adjustment for new circumstances that are anticipated tobe experienced in the future.(3) industry averages or experiences of similar businesses.(4) examination of current accounts and company creditpolicies.9.Recognizing bad debts expense reduces accounts receivableon the asset side and reduces the retained earnings on theequity side.10.A write-off of an uncollectible account when the allowancemethod is used has no effect on the accounting equationbecause the allowance account, a contra asset account, isreduced and the accounts receivable account, also on theasset side, is reduced.When the direct method is used, a write-off of anuncollectible account reduces assets (accounts receivable)and reduces retained earnings (increases bad debtsexpense).11.The recovery of a bad debt when the allowance method isused does not affect the income statement. Only accountsreceivable, cash, and allowance for doubtful accounts areaffected. Cash flow from operations increases as a result of the collection.12.The advantage of using the allowance method is that itimproves the accuracy of the financial statements; theadvantage of using the direct write-off method is that it isconvenient to use.