Accounting CH 7

In August, Johns Co.'s account receivable balance was written off using the direct method. In November, Johns pays the balance in full. The journal entry to record the reinstatement of the account receivable must include a credit to the _________________ before recording a debit to the Cash account.

Bad Debts Expense Account

P.Jameson Co. sold $500 of merchandise on Master Card credit sales. The net cash receipts from the sale are immediately deposited in the seller's bank account. Master Card charges a 4% fee. The journal entry to record this sales transaction would include a:

Debit to Cash for 480 Debit to Credit Card Expense for 20 Credit to sales for 500

(T/F) the allowance method for bad debts matches the estimated loss from uncollectible receivable against the sales they helped produce.

True

the allowance for doubtful accounts is a contra asset account that has a normal

credit balance

the direct write-off method record bad debts expense only when an account becomes uncollectible which is not always in the same period as the sale. For this reason the direct write-off method violates the

expense recognition principle

(T/F) the direct write off method of accounting for bad debts matches the estimated loss from uncollectible accounts receivable against the sales they helped produce

false

two advantages of using the allowance method to account for bad debts include

matching expenses with related sales reporting accounts receivable balance at net realizable value

realizable value

the expected proceeds from accounts receivable, determined by taking accounts receivable less the allowance for doubtful accounts

allowance for doubtful accounts is a contra asset account that equals

total uncollectible accounts