Chapter 5 Receivables and Sales

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

cash; accounts receivable

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?

$18,000 ($20,000-$2,000)

A trade discount is a reduction from the list price, which is used to:

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

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 reinstate the account receivable and an entry to to record payment

When an account previously written off is collected in full, the entry to reverse the previous write-off would require which of the following?

Credit Allowance for Uncollectible accounts; Debit Accounts Receivable

Warner Corp. sells goods on account for $10,000 on April 2. On April 20, the customer returns $3,000 of the merchandise. The customer has not yet paid for any of the goods. What is the entry Warner will make on April 20 when the goods are returned?

Debit Sales Returns; Credit Accounts Receivable

York Inc. records a year-end adjustment for estimated sales returns and allowances. As a result of this entry, York's financial statements will change as follows:

Equity decreases Assets decreases

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

Two entries are required when a previously written off account is collected. These two entries include:

Reinstate the account receivable Record the collection on the account receivable

The account "Allowance for Uncollectible Accounts" is classified as

a contra asset to accounts receivable

A trade discount is

a percentage reduction from the list price

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

aging

To record an estimate for future bad debts at the end of the period, an adjustment would be made with a credit to

allowance for uncollectible accounts

With the allowance method, bad debt expense is recorded

at the end of the period when bad debts are estimated

The estimated expense for accounts that may not be collected is referred to as

bad debt expense

The percentage-of-receivables approach to measuring bad debt expense is referred to as _____ method.

balance sheet

Sales returns and Sales allowances are _____-______ accounts and require only a debit entry to increase the account.

contra-revenue

Planters Corp. wrote off a customer's uncollectible account in April. In the following month, Planters collected from the customer in full. The entry to reinstate the account would require a

credit to Allowance for Uncollectible Amounts

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):

decrease in Accounts Receivable

The financial statement effects of recording an allowance for estimated sales returns are that

equity decreases assets decrease net income decreases

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

net

When a customer returns a product for refund, in which account is this entry recorded?

sales return

The direct write-off method is used when

uncollectible accounts are not anticipated or are immaterial

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; Debit to Allowance for Uncollectible Accounts

Adrian Corp. sells goods on account for $100,000 on May 1. On May 15, the customer returns $40,000 of the merchandise. The customer has not yet paid for any of the goods. What will Adrian record on May 15?

Debit to Sales Returns Credit to Accounts Receivables

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

Sales discount

Net revenues is calculated as total revenues minus which of the following items

Sales returns Sales discounts Sales allowances

The receivables turnover ratio indicates

The number of times during a year that the average accounts receivables were collected.

The journal entry to record bad debt expense includes

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

Under the allowance method, companies estimate _____ uncollectible amounts and report those estimates in the _____ year.

future; current

The direct write-off method is required for

income tax purposes

Assume Company X is in its fifth year of operation. Analyze the following schedule. What conclusion can be drawn from the following schedule?

the target amount in allowance for uncollectible accounts is $25,500

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

effectiveness in managing receivables

An informal credit arrangement with a customer for payment to be received after a sale is classified as a(n)

account receivable

The allowance for uncollectible accounts is a contra account to

accounts receivable

The amount of cash owed to a company by its customers from the sale of products or services on account is commonly referred to as

accounts receivable

A company that expects that some of its customers will not pay the agreed upon sales price must utilize the

allowance method

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

debit Allowance for Uncollectible accounts

When the allowance method is used, the write-off of an uncollectible account

has no effect on net income

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

sales allowances

When a business provides services to a customer, and the customer promises to pay later, this is referred to as

credit sales

Sales to customers in which the customers pay within 30 to 60 days are referred to as

credit sales sales on account

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?

$93,000 ($100,000-$7,000)

A trade discount is recognized

by reducing the revenue amount recorded

When the direct write-off method is used, an entry for bad debt expense is required

when the account receivable is determined to be uncollectable

The allowance method is required by

GAAP

For accounts receivable, the longer an account is outstanding,

the more likely it will prove uncollectable

Accounts receivable are typically classified as current assets because

they will be converted to cash within 1 year

write-off

(business) to cancel a debt; to recognize that something is a failure, has no value, etc.

Where is a note receivable reported in the balance sheet?

In either current or noncurrent assets, as appropriate

The percentage-of-receivables method of estimating bad debt applies ____ to _____.

a single percentage; accounts receivable

Accounts receivable

asset

Two important ratios that help in understanding a company's effectiveness in managing receivables are the

average collection period receivable turnover ratio

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

bad debit expense

Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to

be more accurate

The Accounts Receivable account is reduced when the seller:

determines that a specific customer account will not be collectable

The Accounts Receivable account is reduced when the seller

determines that a specific customer account will not be collectible

Gwendolyn uses the allowance method to account for uncollectible receivables. Gwendolyn should record _____ bad debt expense ______.

estimated; at the end of the year

(Face value x annual interest rate x fraction of the annual period) is the formula for

interest on a note

An aging schedule classifies accounts receivable based on

length of time outstanding

When a company has earned interest in the current period but has not yet recorded the interest, what type of adjustment is the company required to make?

make an adjusting entry at the end of the current period to accrue the interest earned

Receivables not expected to be collected should

not be counted in the assets of the company

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

note payable

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