Accounting Chapter 8

How do you record the JE for the bad debt expense estimate?

Debit Bad debts expense Credit allowance for bad debts

When a bank lends money to a customer what does the JE look like?

Debit N/R - cust Credit Cash No interest is recorded at this time

What account does a dishonored note move to? What other accounts are involved in the journal entry?

Accounts Receivable Notes Receivable Interest Revenue

The Accounts Receivable balance is $20,000 and the Allowance for Bad Debts has a credit balance of $4,000 at the end of the year. What is the net realizable value of Accounts Receivable at the end of the year?

$16,000

Ballman Corporation uses the allowance method to account for uncollectible receivables. At the beginning of the year, Allowance for Bad Debts had a credit balance of $2,000. During the year, Ballman wrote off uncollectible receivables of $4,200. Ballman also recorded an adjusting entry for $4,000 of bad debt for the current year. What is Ballman's year-end balance in Allowance for Bad Debts?

1,800 When the company records $4,000 entry of bad debt for the current year, they will debit the Bad Debt Expenses and credit Allowance account. The ending balance in the allowance account equals: Beginning balance $2,000 - Accounts written off (debit Allowance) $4,200 + Credit to Allowance for current year $4,000 = $1,800.

Blue Company's net credit sales for the year is $100,000. The beginning Accounts Receivable balance is $30,000 and the ending Accounts Receivable balance is $40,000. What is the accounts receivable turnover?

2.86 times The accounts receivable turnover is calculated by Net Credit Sales / Average Accounts Receivable. In this case, take 100,000 / ((30,000 + 40,000)/2) = 2.86 times.

How is net realizable value calculated?

Accounts Receivable - Allowance for Bad Debts

Basic Learning provides $6,000 in services to customer Thompson on account. The revenue is recorded (ignore Cost of Goods Sold) as follows:

Accounts Receivable - Thompson 6,000 Sales Revenue 6,000

Andrews Company accepted a note receivable from a credit customer who failed to pay their $2,000 Accounts Receivable balance. The customer signed a promissory note which was accepted for 9 months at 5% interest. At the end of the 9 months, the customer does not pay, so it becomes a dishonored note receivable. What is the journal entry for the dishonored note?

Accounts Receivable 2,075 Notes Receivable 2,000 Interest Revenue 75 A dishonored note should be moved to Accounts Receivable. So debit Accounts Receivable for the 2,000 notes + $75 in interest = 2,075. Credit Interest Revenue for $75** and Notes Receivable for the principle of $2,000. ** Interest is calculated using the formula: Principal x interest x time $2,000 x 5% x 9/12 = $75

Which method of accounting for uncollectibles allows for a more accurate balance for assets on the Balance Sheet?

Allowance Method The Allowance Method gives you a more accurate balance for Accounts Receivable (which appears on the Balance Sheet) since the Allowance for Bad Debts contra account reduces Net Accounts Receivable to what you actually expect to collect.

Rose Company uses the allowance method and estimates that 2% of its $10,000 Accounts Receivable are uncollectible. The entry to record this adjustment would be:

Bad Debts Expense 200 Allowance for Bad Debts 200

Cart Corporation accepted a note receivable from a credit customer who failed to pay their $2,000 Accounts Receivable balance. The customer signed a promissory note which was accepted for 45 days at 5% interest. At the end of 45 days, the customer pays the balance on Notes Payable and interest. What is the journal entry for receiving the payment of the note and interest?

Cash 2,012.50 Interest Revenue 12.50 Notes Receivable 2,000.00 Interest is calculated using the formula: Principal x interest x time $2,000 x 5% x 45/360 = $12.50 Both the interest and the principal amount of the note are received and Cash is debited. Notes Receivable is credited when paid and Interest Revenue is credited to reflect the interest earned.

Jones Company writes off $500 of the Accounts Receivable owed by Joe Smith. Joe Smith did end up paying the $500, so Jones Company reversed the write off. Using the allowance method, what is the journal entry to show receiving the cash from Joe Smith after the write off on his account is reversed?

Cash 500 Accounts Receivable 500

Digital Office Elite Company writes off $800 of the Accounts Receivable owed by Pat Thompson. Pat Thompson did end up paying the $800, so Digital Office Elite Company reversed the write off. Using the allowance method, what is the journal entry to show receiving the cash from Pat Thompson after the write off on his account is reversed?

Cash 800 Accounts Receivable 800

How do you reverse a write off using the allowance method?

Debit Accounts Receivable Credit Allowance for Bad Debts

How is accounts receivable turnover calculated?

Net Credit Sales / Average Accounts Receivable

How do you estimate the amount of bad debt expense? (equation)

Net credit sales x uncollectible percent = bad debt expense

Cart Corporation accepted a note receivable from a credit customer who failed to pay their $2,000 Accounts Receivable balance. The customer signed a promissory note for 60 days at 5% interest. What is the journal entry to record the acceptance of the notes receivable?

Notes Receivable 2,000 Accounts Receivable 2,000

After writing off a $600 account balance for Filmore Company using the allowance method, Filmore Company sends in the payment. The journal entry to reverse the write off using the allowance method is:

To reverse a previous write off in the allowance method, debit Accounts Receivable and credit Allowance for Bad Debt. Accounts Receivable 600 Allowance for Bad Debts 600

Ballman Corporation determines that it cannot collect a total of $300 from a customer. Using the allowance method, the journal entry to write off the amount would be:

To write off using the allowance method, debit Allowance for Bad Debts and credit Accounts Receivable. Allowance for Bad Debts 300 Accounts Receivable 300

Pledging of receivables is when ________.

a business uses its receivables as security for a loan

When a business factors its receivables, it sells its receivables to _________.

a finance company or bank

How to calculate interest rate on note? Example: calculate interest rate on Note 1: $50,000 4% interest rate 9 month interest period during 2018

equation: amount of interest earned = principal x interest rate x time 50,000 x 0.04 x 9/12 = 1,500