Accounting Smartbook Chapter 5

Accounts receivable should be classified as a(n) - asset. - revenue. - liability. - expense.

asset

The allowance method estimates - future sales. - uncollectible accounts. - trade discounts. - sales discounts.

uncollectible accounts

The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the ______________ method of accounts receivable

aging

Prime Corp. has an ending balance in the accounts receivable account of $100,000. Prime recorded bad debt expense of $3,000. Prime has an ending balance in the allowance for uncollectible accounts of $7,000. What is the net accounts receivable balance? - $107,000 - $90,000 - $93,000 - $97,000

$93,000

Raven receives a 3-year note receivable from a customer for goods sold. How should Raven report this note receivable in its financial statements? - As a current asset - As a non-current asset - As a contra account to sales - As other comprehensive income

As a non-current asset

The allowance method is required by ______________

GAAP

When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n) ______________ ______________.

Sales Return

A trade discount is - a rebate from the manufacturer. - an increase in the account receivable. - a percentage reduction from list price. - a percentage reduction of the amount due for early payment.

a percentage reduction from list price.

The allowance for uncollectible accounts is a contra account to - accounts receivable. - bad debt expense. - sales allowances. - revenue.

accounts receivable

A partial adjustment to the amount owed by the customer for goods that were not returned, but did not fully meet the customer's expectations is referred to as a sales - discount. - credit. - debit. - allowance.

allowance

The cost of estimated accounts receivable that will not be collected is referred to as ______________ ______________ expense

bad debit

Allowance for Uncollectible Accounts has a credit balance because it is a(n) ______________ account. - contra-asset - asset - expense - liability - contra-revenue

contra-asset

Ophelia Inc. just learned that Patton Inc., one of its customers with an outstanding accounts receivable balance, filed for bankruptcy. Assuming that the company utilizes the allowance method, Ophelia should record a(n): - increase in Allowance for Doubtful Accounts - increase in Accounts Receivable - increase in Sales Revenue - decrease in Accounts Receivable - decrease in Sales Revenue

decrease in Accounts Receivable

The receivables turnover ratio and the average collection period provide information about a company's - amount of net credit sales - effectiveness in managing receivables - ability to generate sales

effectiveness in managing receivables

Total revenues less discounts, returns, and allowances are referred to as ______________ revenues

net

Pixie Inc. writes off a specific accounts receivable. If Pixie is using the allowance method, the write off will ______________ net income. - increase - not affect - decrease

not affect

When a customer returns a product for a refund, in which account is the entry recorded? - sales discount - purchase return - purchase discount - sales return

sales return

The account "Allowance for Uncollectible Accounts" is classified as - a contra asset to accounts receivable. - an expense in the income statement. - a contra equity account. - a liability account in the balance sheet.

a contra asset to accounts receivable.

When the allowance method is used, the write-off of an uncollectible account: - has no effect on net income - decreases net income - increases net income

has no effect on net income

Sales to customers in which the customers pay within 30 to 60 days are referred to as (Select all that apply.) - credit sales. - deferred sales. - non-accrued sales. - sales on account

- credit sales - sales on account

A company that expects that some of its customers will not pay the agreed upon sales price must utilize the - direct write-off method - debt forgiveness method - bad debt method - allowance method

allowance method

A(n) ______________ ______________ is the legal right to receive cash from a credit sale and represents an asset of the company

trade receivables

The direct write-off method is required for - income tax purposes. - U.S. GAAP reporting purposes. - IFRS reporting purposes.

income tax purposes

The amount of cash owed to a company by its customers from the sale of goods or services is referred to as: - a guarantee. - accounts receivable. - accounts payable. - uncollectible accounts

- accounts receivable

Raven receives a 3-year note receivable from a customer for goods sold. How should Raven report this note receivable in its financial statements? - As other comprehensive income - As a contra account to sales - As a current asset - As a non-current asset

As a non-current asset

Which of the following is a discount in the amount to be paid if the customer pays within a specified time period? - Trade discount - Quantity discount - Sales discount - Purchase discount

sales discount

Tudor Corp. has an ending balance in the accounts receivable account of $20,000. Tudor recorded bad debt expense of $1,000. Tudor has an ending balance in the allowance for uncollectible accounts of $2,000. What is the net accounts receivable balance? - $20,000 - $19,000 - $17,000 - $18,000

$18,000

A trade discount is - a rebate from the manufacturer. - an increase in the account receivable. - a percentage reduction from list price. - a percentage reduction of the amount due for early payment.

- a percentage reduction from list price

When an account previously written off is collected in full, which is required to ensure the accounting for the complete payment history of the customer? - An entry to record payment and an entry to record bad debt expense. - An entry to adjust net sales and an entry to adjust bad debt expense. - An entry to reinstate the account receivable and an entry to adjust bad debt expense. - An entry to reinstate the account receivable and an entry to record payment

An entry to reinstate the account receivable and an entry to record payment

True or false: Accounts receivable not expected to be collected should be counted in the assets of the company until they are later written off.

false

To record an estimate for future bad debts at the end of the period, an adjustment would be made with a credit to - accounts receivable. - sales returns and allowances. - bad debt expense. - allowance for uncollectible accounts.

allowance for uncollectible accounts.

The account "Allowance for Uncollectible Accounts" normally has a ______________ balance

credit

When a business provides services to a customer, and the customer promises to pay later, this is referred to as - cash sales. - current sale. - credit sales. - operating sales

credit sales

Under the allowance method, companies estimate ______________ uncollectible amounts and report those estimates in the ______________ year. - current; current - current; future - future; future - future; current

future; current

A formal credit arrangement between a creditor and debtor is called a(n) - account receivable. - trade receivable. - note receivable. - interest receivable.

note receivable

Accounts receivable are typically classified as current assets because - they will be converted to cash within 1 year. - they accrue interest at a specified interest rate. - they are matched with accounts payable for the period. - they are a formal agreement to pay within a specific period of time.

they will be converted to cash within 1 year.

When the direct write-off method is used, an entry for bad debt expense is required - when each sale is made. - when the account receivable is determined to be uncollectible. - only when bad debts are recorded on the tax return. - at the end of the year.

when the account receivable is determined to be uncollectible

Joyce Corp. uses the percentage-of-receivables method to account for bad debt expense. Joyce determines that a customer account of $20,000 should be written off as uncollectible. The write off of the account will include which of the following entries? - Credit to Accounts Receivable - Credit Allowance for Uncollectible Accounts - Debit to Allowance for Uncollectible Accounts - Debit Bad Debt Expense

- Credit to Accounts Receivable - Debit to Allowance for Uncollectible Accounts

Net revenues is calculated as total revenues minus which of the following items? - Sales returns - Allowance for uncollectible accounts - Accounts receivable - Sales discounts - Sales allowances

- Sales returns - Sales discounts - Sales allowances

Two important ratios that help in understanding a company's effectiveness in managing receivables are the: - average collection period - receivable turnover ratio - gross receivable ratio - receivables profit margin

- average collection period - receivable turnover ratio

The journal entry to record bad debt expense includes: (Select all that apply.) - credit to bad debt expense - debit to bad debt expense - credit to allowance for uncollectible accounts - debit to allowance for uncollectible accounts

- debit to bad debt expense - credit to allowance for uncollectible accounts

Two entries are required when a previously written off account is collected. These two entries include: - record bad debt expense - reinstate the account receivable - record the adjustment to sales - record the collection on the account receivable

- reinstate the account receivable - record the collection on the account receivable

Amend Inc. debited Accounts Receivable and credited Allowance for Uncollectible Accounts to reestablish an account previously written off. Amend Inc. should also debit _______ and credit _______. - Cash; Accounts Receivable - Accounts Receivable; Cash - Allowance for Uncollectible Accounts; Cash - Cash; Allowance for Uncollectible Accounts

Cash; Accounts Receivable

Where is a note receivable reported in the balance sheet? - In either current or non-current assets, as appropriate. - In non-currrent assets. - In non-current liabilities until paid. - In either current or non-current liabilities, as appropriate. - In current assets.

In either current or non-current assets, as appropriate.

The estimated expense for accounts that may not be collected is referred to as - sales discounts. - interest expense. - accounts receivable. - amortization expense. - bad debt expense.

bad debt expense

Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to - recognize bad debts earlier. - result in the highest net income. - be more accurate. - result in the lowest net income.

be more accurate

A sales allowance ______________ the amount owed by the customer for merchandise that is ______________ by the customer

decreases; retained

The Accounts Receivable account is reduced when the seller: - adopts the allowance method - determines that a specific customer account will not be collectible - records the allowance for uncollectible accounts

determines that a specific customer account will not be collectible

A cash discount representing a reduction in the amount to be paid by a credit customer if the customer pays within a specified period of time is also referred to as a(n) ______________ discount.

sales

A trade discount is a reduction from the list price, which is used to: - disguise real prices from competitors - encourage customers to pay quickly - change prices without publishing a new catalog - give quantity discounts to customers - reduce the sale price for interest received

- disguise real prices from competitors - change prices without publishing a new catalog - give quantity discounts to customers

Shannon Corp. uses the aging method to account for bad debt expense. Shannon determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account will include - credit Sales Returns and Allowances. - debit Accounts Receivable. - debit Allowance for Uncollectible Accounts. - debit Bad Debt Expense.

debit Allowance for Uncollectible Accounts.

Receivables not expected to be collected should - initially be included as assets and then be written off when the customer does not pay. - not be counted in assets of the company. - always be counted in assets of the company

not be counted in assets of the company.

A formal, signed credit agreement between a lender and a borrower is called a(n) _____ by the lender. - note payable. - account payable. - account receivable. - note receivable.

note receivable