acct test 3 ch. 7

Oral promises of the purchaser to pay for goods and services sold; no interest

A/R

Gross method entry: Sales of $10,000, terms 2/10, n/30

A/R- 10,000 Sales Revenue- 10,000

Journal entry for credit sale of $100

A/R- 100 Sales Revenue- 100

Net method entry: Sales of $10,000, terms 2/10, n/30

A/R- 9800 Sales Revenue- 9800

Brown Furniture has an amount of $150,000 that is still uncollected. Of this amount they estimate $10,000 will be uncollectible. What is the net realizable value?

A/R- Allowance for DA 150,000- 10,000= 140,000

The amount of bad debt expense and the related credit to the allowance account are unaffected by any balance currently existing in the ______ account

Allowance

Bad debt expense does not increase when a write-off occurs; Under the allowance method, companies debit every bad debt write-off to the ________ account rather than to Bad debt expense

Allowance for DA

Journal entry: Write-off of uncollectible accounts for $10

Allowance for DA- 10 A/R- 10

Ex. Assume the financial vice president of Brown Furniture authorizes a write-off of $1,000 balance owed by Randall Co. on March 1, 2015. The entry to record this write is:

Allowance for DA- 1000 A/R- 1000

When companies write off a specific account, they debit actual uncollectibles to _____ and credit _______

Allowance for DA; A/R

% of Sales--- % times Sales=

Bad Debt Expense

Companies record credit losses as debits to _______

Bad Debt Expense

Ex. Assume Brown Furniture has credit sales of $1,800,000 in 2014. Of this amount, $150,000 remains uncollected at December 31. The credit manages estimates that $10,000 of these sales will be uncollectible. What is the adjusting entry to record the estimated uncollectible?

Bad Debt Expense- 10,000 Allowance for Doubtful Account- 10,000

Journal entry: adjustment of $15 for estimated Bad-debts

Bad debt expense- 15 Allowance for Doubtful Accounts- 15

Ex. Wilson Co. reports that the Allowance account has an end balance of $37,650 for this year and the Allowance account has a CREDIT balance of $800 before adjustment. What is the journal entry:

Bad debt expense- 36850 Allow DA - 36850

Ex. Wilson Co. reports that the Allowance account has an end balance of $37,650 for this year and the Allowance account has a DEBIT balance of $200 before adjustment. What is the journal entry:

Bad debt expense- 37,850 Allow DA- 37,850

Ex. Gonzales Company concludes that 1% of net credit sales will become uncollectible. Net credit sales for 2014 are $800,000. The adjusting entry is:

Bad debt expense- 8000 Allowance for DA- 8000

Companies debit estimated uncollectibles to _____ and credit them to ________

Bad debt expense; Allowance for Doubtful Accounts (contra asset account)

Allowance for Doubtful Accounts is put on the _____

Balance sheet

% of Recievables--- % times Receivables=

Balance you want

When companies write a check for more cash than they have in their cash account

Bank Overdraft

Change funds

Cash

Free from all restrictions

Cash

Most liquid asset Standard medium of exchange Basis for measuring and accounting for all items Current asset Unproductive

Cash

Petty Cash

Cash

coin, currency, available funds on deposit at the bank, money orders, certified checks, cashier's checks, personal checks, bank drafts and savings accounts.

Cash

Almost risk free securities

Cash Equivalents

Generally, only investments with original maturities of three months or less qualify under these conditions

Cash Equivalents

Short-term, highly liquid investments that are both readily convertible to cash, and so near their maturity that they present insignificant risk of changes in interest rates/value.

Cash Equivalents

Examples of this are treasury bills, commercial paper, and money market funds

Cash Equivalents/Temprary Investments

Commercial paper

Cash and Cash Equiv

Treasury Bills

Cash and Cash Equiv

Journal entry: collected $333 on account

Cash- 333 A/R- 333

Net method entry: Payment on $4,000 of sales received within discount period (Sales of $10,000, terms 2/10, n/30)

Cash- 3920 A/R- 3920

Gross method entry: Payment on $4,000 of sales received within discount period (Sales of $10,000, terms 2/10, n/30)

Cash- 3920 Sales Discount- 80 A/R- 4000

Journal entry: Company decided that the amount of cash in petty cash fund is excessive by $50m it lowers the fund balance as follows

Cash- 50 Petty Cash- 50

Gross method entry: Payment on $6,000 of sales received after discount period

Cash- 6000 A/R- 6000

Net method entry: Payment on $6,000 of sales received after discount period

Cash-6000 A/R- 5880 Sales Discount Forfeited- 120

Reporting of receivables involves:

Classification and valuation on the balance sheet

Difference between amount on deposit per company records and the amount of cash collected per bank records; this gets smaller and smaller because of online bank

Collection float

Amount required to be maintained in checking/savings accounts by financial institutions

Compensating balances

Restricted cash is either recorder as a _____ asset or a _____ asset depending on how long you are holding it for

Current asset or long-term investment

Receivables are classified as _____ or _______

Current assets or long-term investments

A bank overdraft is considered a ______ _____

Current liability

Bank overdraft

Current liability

A company makes two entries to record the recovery of a bad debt by reversing the entry made in writing off the account which reinstates the customer's account and journalizes the collection. The two entries are:

Debit A/R Credit Allow for DA Debit Cash Credit A/R

Reconciling items include:

Deposits in transit, outstanding checks, bank charges and credits, bank or deposited error

A/R- 1000 Allowance for DA- 1000 Cash- 1000 A/R- 1000

Ex. On July 1, 2015, Randall Co. pays the $1,000 amount that Brown had written off on March 1. The entry is:

T/F Savings accounts are not considered cash

FALSE

Cash, receivables, and short-term investments are primary liquid assets and are known as ______ ______

Financial Assets

Principal bank account

General checking account

Record sale at actual selling price; recognize discounts that are taken

Gross Method

Under this method, companies recognize sales discounts only when they receive payment within the discount period; income statement shows sales discounts as a deduction from sales to arrive at net sales

Gross method

Limited purpose bank accounts

Imprest bank accounts

Use a financial institution to collect money on company's behalf

Lockbox accounts

The person who promises to pay a certain amount; the borrower

Maker

checking account

Money market funds that prove _____ ______ privileges are usually classified as cash

Written promises to pay a sum of money on a specified future date; always interest

N/R

Does GAAP require the use of cash equivalents?

NO

Record sale at net amount (selling price- cash discount); recognize discounts that are forfeited

Net Method

The primary objective of percentage of outstanding receivables method for financial statement purposes is to report receivables in the balance sheet at ________

Net realizable value

Companies value and report short-term receivables at ______

Net realizable value (the net amount they expect to receive in cash)

Journal entry: Petty cash custodian obtains signed receipts from one individual for $50 to whom he or she pays cash

No entry

Banks will _____ against other cash accounts only when available cash is present in another account with the same bank where the overdraft occurred

Offset

Cash Discount Forfeited is reported under ____

Other Revenue

If using net method, a company considers Sales Discounts Forfeited as ________ ______ on income statement

Other Revenue

Two types of bases used for Allowance Method:

Percentage of Sales and Percentage of Recievables

The _________ basis produces the better estimate of net realizable value-- a balance sheet viewpoints

Percentage of receivables

The ______ method is not affected by what is in the allowance account where as the _____ method is affected by what is in the allowance account

Percentage- of - Sales; Percentage of Receivables

Percentage based upon past experience and anticipate credit policy; any existing balance in Allowance for Doubtful Accounts is ignored

Percentage- of- Sales

Not matching; reports receivables at realizable value

Percentage-of-receivables

The _______ basis results in a better matching of expenses with revenues-- an income statement viewpoint

Percentage-of-sales

This is used for small amounts of miscellaneous expenses

Petty Cash

Journal entry: $300 transfer of funds to petty cash

Petty Cash-300 Cash-300

A company should measure receivables in terms of their _____ _____

Present value

Postdated checks and I.O.U.s

Receivables

Travel Advances

Receivables

Schedule that explains differences between the bank's and the company's records of cash

Reconciliation of Bank Balances

Petty cash transactions are not recorded until the fund is ___________

Reimbursed

_______ ______ is segregated from regular cash

Restricted Cash

Examples of this are for plant expansion, retirement of long-term debt and compensating balances

Restricted Cash- long-term

Compensating balances is considered ________ _____

Restricted cash

Certificate of Deposit

Short term investment

If an asset is not cash and is short-term in nature it should be reported as a _______ ______

Temporary Investment

Money-market funds

Temporary Investment

The ______ method fails to record expenses in the same period as associated revenues and does not result in receivables being stated at net realizable value on the balance sheet

The direct write-off method

Two methods are used in account for uncollectible accounts:

The direct write-off method and the allowance method

Reductions from the list price to determine actual selling prices; trade discount not recognized in the account records

Trade discounts

Receivables are further classified in the balance sheet as either _____ or ______ receivables

Trade or Non-trade

When companies have exhausted all means of collecting a past-due account and collection appears impossible, the company should _________ the account

Write-off

The _____ method of account for bad debts involves estimating uncollectible accounts at the end of each period and ensures that companies state receivables on the balance sheet at their net realizable value

allowance

Write-offs are recorded ______ a year

as often as needed

The write-off of a bad debt and the recovery of a bad debt only affects the _________ accounts

balance sheet

Negotiable instruments such as money orders, certified checks, cashier;s checksum personal check and bank drafts are also viewed as ____

cash

Cash consists of _____, _____, and available ______ on deposit at the bank

coin, currency, funds

Allowance for DA increases with a _______ and decreases with a ____

credit; debit

Bad Debt Expense Adustment is made _____ a year

once

Office supplies/prepaid expense

postage stamps on hand

Net realizable method is:

the net amount the company expects to receive in cash

Petty Cash- no journal entry except for when:

transferring cash to petty cash account and when replenishing fund