chapter 6

two methods to estimate bad debt expense and allowance balance

- percentage of credit sales method -aging of accounts receivable method

An analyst sees the line item Trade accounts receivable, net of allowances of $2,040,000, with a balance of $19,500,000. Which of the following statements is correct. (Select all that apply.)

19,500,000 is the expected amount to be collected from customers 21,540,00 is the gross receivables 2,040,000 is the amount estimated to be uncollectible

Using the aging approach, management estimates that $1,000 of Accounts Receivable will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted credit balance. The adjusting entry to record estimated bad debts includes a ______. (Check all that apply.)

900 debit bad debt, 900 credit allowance

During the month, Cellum, Inc. sold 100 cells at a price of $100 each. Each cell was sold at a 1% sales discount. Cellum had returns of $198 (net of discounts) and incurred bank service charges of $20. Net sales for the month ended equals $

9702

bank reconciliation

A report that accounts for the differences between the bank statement and a checkbook balance ensure they have right cash amount

write off journal entry

ADA AR -doesnt change assets or any income statement account

bad debt recovery accounts

AR ADA Cash AR

bad debt expense journal entry

BDE ADA -assets and net income goes down

The line item Trade accounts receivable, net of allowances will be found on the ______.

BS

Who normally pays for shipping when the shipping terms are FOB destination?

Buyer

What does FOB shipping point mean?

Goods are owned by the buyer when they leave the seller's place of business

The days to collect ratio provides what kind of information?

That a higher number of days means a longer (worse) time for collection The average number of days from sale on account to collection

aacounts rec (net)

accounts rec (gross)- ADA

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

effectiveness in granting and collecting credit

Given the unadjusted Allowance for Doubtful Accounts has a $50 credit balance, the amount of receivables written off was ______ than the amount estimated in the prior period. This will cause Bad Debt Expense to be ______ in the current period than had the unadjusted balance been a debit or $0 unadjusted balance.

less;less A credit balance remaining in the Allowance account indicates that less was written off than was allowed for in the prior period. Thus, in the current period less will need to be expensed since too much was expensed in the prior period.

accounts

-Accounts Receivable (Net) is the net realizable value. -Allowance for Doubtful Accounts is the amount of receivables estimated to be uncollectible. -Accounts Receivable (Net) reports the amount of receivables expected to be collected. -Accounts Receivable (Gross) includes both collectible and uncollectible receivables.

Brewed Awakenings, Inc., sold $100,000 of coffee to Java the Hut with sales terms of 1/7, n/30. Given Java paid within the discount period, the amount of the sales discount equals

100000x.01= 1000

The entry to record the collection of $9,600 from a customer whose account had previously been written off includes a ______.

credit to Allowance for doubtful accounts of $9,600

A contra-asset account, such as Allowance for Doubtful Accounts or Accumulated Depreciation, has a normal balance of a ______ and causes total assets to ______.

credit;decrease

Given the unadjusted Allowance for Doubtful Accounts has a $50 debit balance, the amount of receivables written off was ______ than the amount estimated in the prior period. This will cause Bad Debt Expense to be ______ in the current period than had the unadjusted balance been a credit balance.

greater; greater A debit balance remaining in the Allowance account indicates that more was written off than was allowed for in the prior period. Thus, in the current period more will need to be expensed in order to compensate for not expensing enough in the prior period.

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

has no effect on net income

common causes for differences in ending bank balance and ending book balance

outstanding checks, deposits in transit, bank service charges, NSF checks, interest, errors

internal controls

safeguards its assets and provides reasonable assurance regarding the reliability of a companies financial reporting, the effectiveness and efficiency of its operations, and its compliance with applicable laws and regulations

expense recognition principle requires companies to record bad debt expense in the ____ accounting period in which the related sale is made

same

Accounts receivable has a $2,300 balance, and the Allowance for doubtful accounts has a $200 credit balance. An $80 account receivable is written off. The net book value of receivables on the balance sheet after the write-off equals ______.

($2,300 - 80) - (200 - 80) = $2,100

ABC, Inc.'s unadjusted trial balance included Accounts receivable of $80,000; Allowance for doubtful accounts as a $750 credit balance; and Credit sales of $400,000. ABC uses the aging-of-receivables method and estimates that $8,000 of its receivables will be uncollectible. After the adjusting entry is made, ABC's financial statements will report: (Check all that apply.)

-Allowance for doubtful accounts of $8000 on the balance sheet-bad debt expense of $7250 on the income statement

Delectable, Inc.'s unadjusted trial balance includes Accounts receivable of $10,000; Allowance for doubtful accounts as a $50 credit balance; and Credit sales of $100,000. Based on an aging of its receivable, management estimates that $1,000 of receivables will be uncollectible. Delectable's financial statements will show ______.

-Bad Debt Expense of $950 -Allowance for Doubtful Accounts of $1,000

Using the aging approach, management estimates that $1,000 of accounts receivable will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted debit balance. The Allowance for Doubtful Accounts on the balance sheet will equal ______.

1000

Libby Inc. sells $5,000 of goods to a customer. The customer pays with a VISA credit card. VISA charges a 3% fee on the sale. Recording the sale would include a debit to Cash of ______. Multiple choice question. $3,500

4850 (5000-(5000x.03))

XYZ Company sold merchandise for $5,000, with payment terms of 2/10,n/30. If the customer pays within the discount period and takes the discount, XYZ will receive ______.

4900 (5000-(.02x5000))

Accounts receivable, net on the balance sheet refers to ______.

Accounts Receivable minus the Allowance for Uncollectible Accounts

FOB destination means that goods are owned by the buyer as soon as ______.

they arrive at the buyers place of business