Chapter 5 - Accounting

When an account previously written off is collected in full, the entry to reverse the previous write-off would require______________. (a debit and a credit)

A credit to Allowance for Uncollectible Accounts and a debit to Accounts Receivable

Method of reporting accounts receivable for the net amount expected to be collected

Allowance method

Which method of accounting requires estimating bad debt expense and recording the expense in the same period as the related revenue?

Allowance method

What type of balance does a note receivable account normally have?

Debit (because it is an asset)

Which method of accounting requires recognizing bad debt expense when it is determined that the customer cannot pay?

Direct write-off method

Interest on a note formula :

Interest = Face value x Annual interest rate x Fraction of the year

The direct write-off method violates which accounting concept?

Matching expenses to the related revenues

better matching of revenues and expenses is part of what method?

Percentage- of-credit-sales method

assets are reported closer to their net receivable value is part of what method?

Percentage- of-receivables method

Method of estimating uncollectible accounts based on the percentage of accounts receivable expected not to be collected

Percentage-of-receivables method

Number of times during a year that the average accounts receivable balance is collected (or "turns over"). It equals net credit sales divided by average accounts receivable

Receivables turnover ratio

Net revenues is calculated as total revenues minus ________ (three things)

Sales allowances, sales discounts, sales returns

A discount in the amount to be paid if the customer pays within a specified time period

Sales discount

EXAMPLE: A customer returns merchandise purchased during the month and receives a refund of the full sales price.

Sales return

The account "Allowance for Uncollectible Accounts" is classified as

a contra asset to accounts receivable

The receivables turnover ratio and the average collection period provide information about a company's

ability to generate sales

A _________ receivable is an informal credit arrangement with trade customers

account

Trade receivable is another word for

accounts receivable

Writing off a customer's account as uncollectible reduces the balance of

accounts receivable

A sales return occurs when a customer returns a product for a full refund, whereas a sales ________ is when the customer keeps the product and obtains a partial refund.

allowance

To record bad debts at the end of the period, an adjustment would be made by a credit to

allowance for uncollectible amounts

he direct write-off method is not normally an acceptable method under GAAP because it fails to report _____________ correctly

assets and expenses

With the allowance method, bad debt expense is recorded

at the end of the period when bad debts are estimated

Approximate number of days the average accounts receivable balance is outstanding. It equals 365 divided by the receivables turnover ratio

average collection period

The percentage-of-receivables approach to measuring bad debt expense is referred to as a _________________ method

balance sheet

The percentage-of-receivables approach to measuring bad debt expense is referred to as a _________________________ method

balance sheet

The percentage of receivables method is also called the

balance sheet method

The receivables turnover ratio offers an indication of how quickly a company is able to

collect its accounts receivable

Sales Returns and Sales Allowances are ______________ accounts and require a debit entry to increase the account.

contra - revenue

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

credit

If the allowance for uncollectible accounts is 25% of year-end accounts receivable, this might indicate

credit policies are too lenient

The income statement approach for estimating bad debts uses a percentage of

credit sales

Under the allowance method, companies estimate future uncollectible accounts and report those estimates in the ________ year.

current

Mark records a journal entry with a debit to Bad debt Expense and a credit to Accounts Receivable. Mark is utilizing the

direct write-off method

A high receivables turnover ratio is a sign of a company's

effectiveness of credit sales and collection pol

At the beginning of the year, Gerta Company's allowance account has a credit balance of $10,000. This may indicate that the estimate of uncollectible accounts was too

high

Bad debt expense is reported on the

income statement

Using a percentage of each period's net credit sales to estimate bad debt expense is an ___________ approach to measuring bad debts.

income statement

The percentage of credit sales method is also called the

income statement method

The direct write-off method is required for

income tax purposes

At the beginning of the year, Blocker Company's allowance account has a debit balance of $10,000. This may indicate that the estimate of uncollectible accounts was too ______

low

The difference between total accounts receivable and the allowance for uncollectible accounts is referred to as

net accounts receivable

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

net revenues

Income tax receivable is a

non trade receivable

Receivables not expected to be collected should

not be counted in the assets of the company

A _________ receivable typically yields interest revenue and possesses a fairly high probability of collectibility.

note

A ___________ receivable is a formal signed credit arrangement between a creditor and a debtor.

note

A formal credit arrangement between a creditor and debtor is called a

note receivable

The process of estimating uncollectible accounts

occurs throughout the company's life

The method used to estimate bad debts that may result in more accurate reporting of net income is the:

percentage-of-credit-sales method

The __________ ratio shows the number of times during a year that the average receivable balance is collected.

receivables turnover

Trade discount

reduction in the listed price of a good or service

EXAMPLE: A customer receives a partial refund of the sales price after the customer discovers a flaw in the merchandise. The customer keeps the merchandise.

sales allowance

Another term for account receivable

trade receivable

Another term sometimes used for accounts receivable is

trade receivable

Accounts receivable from sales to customers are

trade receivables

A company that tries to increase current-year net income by manipulating bad debt expense could achieve this objective by intentionally

underestimating uncollectible accounts