MGMT 20000 - Exam #2

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A trade discount is

a percentage reduction from the list price

A(n) ________ ________ is the legal right to receive cash from a credit sale and represents an asset of the company.

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 goods or services is referred to as

accounts receivable

Receivables not expected to be collected should

not be counted in assets of the company

A formal credit arrangement between a creditor and debtor is called a(n)

note receivable

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

allowance method

Recording bad debt expense:

- increases expenses - decreases assets - decreases net income

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?

$100,000 - $7,000 = $93,000

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

- average collection period - receivable turnover ratio

The allowance method is required by

GAAP

A customer account that is not expected to be collected is referred to as a ______ debt.

bad

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

be more accurate

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

Allowance for Uncollectible Accounts has a credit balance because it is a(n) _____ account.

contra-asset

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

credit sales

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

A sales allowance ____ the amount owed by the customer for merchandise that is _____ by the customer.

decreases; retained

The Accounts Receivable account is reduced when the seller:

determines that a specific customer account will not be collectible

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

future; current

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

has no effect on net income

Where is a note receivable reported in the balance sheet?

in either current or concurrent assets, as appropriate

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

sales discount

When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n)

sales return

Accounts receivable are typically classified as current assets because:

they will be converted into cash within a year.

A customer account that is not expected to be collected is referred to as a bad debt or______ account.

uncollectible

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?

- debit to allowance for uncollectible accounts - credit to accounts receivable

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

Net revenues is calculated as total revenues minus:

- sales discounts - sales allowances - sales returns

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

account receivable

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

Receivables not expected to be collected are/are not included in assets.

are not

Raven receives a 3-year note receivable from a customer for goods sold. How should Raven report this note receivable in its financial statements?

as a concurrent asset

Accounts receivable should be classified as a(n)

asset

The allowance method estimates

uncollectible accounts

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

when the account receivable is determined to be uncollectible.


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