Chapter 5 class prep Acct 2110

Under the allowance method of accounting for bad debts, the company estimates the amount of bad debts before those debts actually occur.

True

If a company estimates its bad debt expense on the basis of a receivables aging, the balance in the Allowance for Doubtful Accounts account will not affect the amount of the end-of-period adjusting entry for bad debts.

False

Selling on credit protects a company from the risk that some of its receivables will never be collected.

False

The account, "Allowance for Doubtful Accounts" is an expense account (the cost of making bad credit sales) that is reported on the income statement.

False

The lender of a note recognizes a note payable on the balance sheet and interest expense on its income statement.

False

The longer a customer's account balance remains outstanding, the greater the likelihood that it will be collected in the near future.

False

A primary advantage of the allowance method to account for bad debts is that it supports the matching principle.

True

Because the allowance method results in better matching, accounting standards require its use rather than the direct write-off method, unless bad debts are immaterial.

True

The amount of interest paid is a function of three variables, the amount borrowed, the interest rate, and the length of the loan period.

True

The use of the allowance method is an attempt by accountants to match bad debts as an expense with the revenue of the period in which a sale on credit takes place.

True