Accounting Chapter 5: Receivables and Sales

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

credit sales.

The direct write-off method is used when

uncollectible accounts are not anticipated or are immaterial.

The Accounts Receivable account is reduced when the seller:

determines that a specific customer account will not be collectible

The allowance for uncollectible accounts is a contra account to

accounts receivable

Accounts receivable are typically classified as current assets because

they will be converted to cash within 1 year.

The amount of cash owed to a company by its customers from the sale of goods or services is referred to as

Accounts Receivables

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 Reason: Receivables not expected to be collected are not included in assets

Accounts receivable should be classified as a(n)

asset

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

allowance method

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

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.

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

be more accurate

A partial adjustment to the amount owed by the customer for goods that were not returned, but did not fully meet the customer's expectations is referred to as a sales

allowance

Receivables not expected to be collected should

not be counted in assets of the company.

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

sales return

When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n) . (Enter only one word per blank.)

sales return

The allowance method estimates

uncollectible accounts

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

Sales discount

The account "Allowance for Uncollectible Accounts" is classified as

a contra asset to accounts receivable.

A trade discount is

a percentage reduction from list price.

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

note receivable.

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

future; current

The allowance method is required by ___. (Enter one word or abbreviation per blank)

GAAP

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

bad debt

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 record payment.

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

Cash; Accounts Receivable Wrong: Cash; Allowance for Uncollectible Accounts - Reason: this entry would be correct only if the first entry had not been made

The account "Allowance for Uncollectible Accounts" normally has a ___ balance. (Enter only one word.)

credit

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

note 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 Reason: $20,000 - $2,000

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 Reason: $100,000 - $7,000

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 noncurrent asset

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

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

contra-asset

The journal entry to record bad debt expense includes: (Select all that apply.)

credit to allowance for uncollectible accounts debit to bad debt expense

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

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

decreases; retained

The direct write-off method is required for

income tax purposes

Sales to customers in which the customers pay within 30 to 60 days are referred to as (Select all that apply.)

sales on account. credit sales.

Where is a note receivable reported in the balance sheet?

In either current or noncurrent assets, as appropriate.

What is the formula for the receivables turnover ratio?

Net credit sales divided by average accounts receivable (net).

The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the ___ method of accounts receivable. (Enter only one word.)

aging

The formula to compute the receivables turnover ratio is net credit sales divided by

average accounts receivable.

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

average collection period receivable turnover ratio

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

bad debt expense

A trade discount is a reduction from the list price, which is used to: (Select all that apply.)

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

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

effectiveness in managing receivables

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

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