Accounting 101 - Chapter 5

During its first year of operations, Ellison, Inc. bills customers $18,000 for the services it provided. At the end of the year, $6,000 remains due from customers. The company's credit manager estimates that 10% of the total year-end accounts receivable will not be collected. The company's estimate of uncollectible accounts is: $600 $6,000 $12,000 $18,000

$600

A company will debit ___________ when recording a credit sale. - Accounts Payable - Accounts Receivable - Cash - Sales Revenue

- Accounts Receivable

Trade discounts represent: - a reduction in the listed price of a good or service. - a reduction in the amount to be received from a credit customer if -collection occurs within a specified period of time. - a reduction in the customer's balance owed because of a deficiency in the company's good or service. - a return of products by a customer.

- a reduction in the listed price of a good or service.

On May 1, Arden Wholesale sells $800 worth of goods on account to an out-of-state customer. Upon receiving the order on May 7, the customer notifies Arden that approximately 5% of the goods arrived damaged. As a result, Arden reduces the amount owed by the customer by $50. The journal entry by Arden Wholesale on May 7 will include a: debit to Sales Discounts debit to Sales Revenue credit to Accounts Receivable credit to Sales Allowances

- credit to Accounts Receivable On the date of sales allowance, the company will record a debit to Sales Allowances and a credit to Accounts Receivable.

A company will debit ___________ when recording a credit sale. Accounts Payable Accounts Receivable Cash Sales Revenue

Accounts Receivable

Beta Corporation wrote off $100,000 due from a specific client in March. However, this client was able to make a partial payment of $15,000 in June. Recording this cash collection will involve all of the following accounts except: Bad Debt Expense Accounts Receivable Cash Allowance for Uncollectible Accounts

Bad Debt Expense

How are trade discounts recognized? - By using contra revenue accounts - By recording the sale at a discounted price - By debiting the Trade Discounts account - By subtracting them from total revenues at the end of the period

By recording the sale at a discounted price

T|F: A company makes a credit sale for $500. Future collection from the customer is probable. The company will not record revenue from the transaction until it collects cash from the customer.

False Even though the seller does not receive cash at the time of the credit sale, the firm records revenue immediately, as long as future collection from the customer is probable.

A company sells goods to a customer on account for $800, terms 3/10, n/30. The customer pays within the discount period. On the date of payment, the company will debit: Accounts Receivable for $776 Cash for $800 Sales Discounts for $24 Sales Revenue for $800

Sales Discounts for $24 On the date of payment, the company will record a debit to Cash for $776, a debit to Sales Discounts for $24, and a credit to Accounts Receivable for $800.

T|F: Credit sales involve benefits and costs. A benefit of selling on credit is that the seller makes it more convenient for customers to purchase goods and services. A cost of selling on credit is that there is a delay in collecting cash from customers.

True In the long run, credit sales should benefit the company via higher profitability, but come at the cost of a delay in collecting cash from customers.

Sales Returns is an example of a(n) ____________ account, which is used to keep a record of reductions from revenue due to sales returns separate from total revenue itself. asset revenue contra asset contra revenue

contra revenue A contra revenue account has a balance that is opposite, or "contra," to that of its related revenue account, and is used to keep a record of the total revenue separate from reductions in revenue, such as sales returns.

According to the allowance method, writing off an account receivable will include a: debit to Bad Debt Expense credit to Cash credit to Accounts Receivable credit to Allowance for Uncollectible Accounts

credit to Accounts Receivable

A company performs $1,000 worth of services on account on March 1, with the terms 2/10, n/30. The customer makes payment on March 24. The receipt of payment will include a: debit to Cash for $980 debit to Sales Discounts for $20 credit to Accounts Receivable for $1,000 credit to Sales Discounts for $20

credit to Accounts Receivable for $1,000

During its first year of operations, Kimbrough Corporation sold $14 million worth of goods on account. At the end of the year, $5 million remains due from customers. If the company estimates that 20% of the total year-end accounts receivable will not be collected, it will record a: debit to Bad Debt Expense for $5 million debit to Bad Debt Expense for $14 million credit to Allowance for Uncollectible Accounts for $1 million credit to Allowance for Uncollectible Accounts for $5 million

credit to Allowance for Uncollectible Accounts for $1 million

A company performs $1,000 worth of services on account on March 1, with the terms 2/10, n/30. The customer makes payment on March 6. The receipt of payment will include a: debit to Cash for $980 debit to Sales Discounts for $980 credit to Accounts Receivable for $980 credit to Service Revenue for $980

debit to Cash for $980 The transaction will be recorded with a debit to Cash for $980, a debit to Sales Discounts for $20, and a credit to Accounts Receivable for $1,000.

On November 5, Phelps Outerwear sells a coat on account to a customer for $200. On November 15, the customer decides to return the coat to the retailer. The journal entry on November 15 will include a: debit to Sales Revenue debit to Sales Returns credit to Accounts Payable credit to Sales Revenue

debit to Sales Returns On the date of return, the company records a debit to Sales Returns and a credit to Accounts Receivable.

Under the allowance method, companies are required to estimate future uncollectible accounts and record those estimates in the current year. Estimated uncollectible accounts: increase total assets and increase net income. increase total assets and decrease net income. decrease total assets and increase net income. decrease total assets and decrease net income.

decrease total assets and decrease net income.

Under the allowance method, the write-off of accounts receivable: - decreases total assets. - decreases total revenues. - decreases total expenses. - has no effect on total assets or net income.

has no effect on total assets or net income.