Ch 8

Management estimates that 1% of the $100,000 of credit sales will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted credit balance. After the adjusting entry is recorded, Bad Debt Expense on the income statement will be ____ the Allowance for Doubtful Accounts on the balance sheet.

$100 less than

Place the events in proper sequence putting the first step on top for a 2-year note established in November that pays interest annually.

1. Debit Notes Receivable and credit Cash 2. Debit Interest Receivable and credit Interest Revenue 3. Debit Cash and credit Interest Receivable 4. Debit Cash and credit Notes Receivable, Interest Revenue and Interest Receivable

Net sales revenue is $720,000. Beginning and ending net accounts receivable are $62,000 and $58,000, respectively. Calculate the receivables turnover ratio.

12.0 times

In financial statements, Sales on account will cause an increase in ____

Accounts Receivable on the balance sheet Sales Revenue on the income statement

Which method requires first estimating the desired amount for the Allowance for Doubtful Accounts and then determining the amount of the expense required to get to this desired balance di mount of the unadjusted balance?

Aging of accounts receivable method

The direct write-off method does not require the ___ account

Allowance for Doubtful Accounts

Murphy's Paw, Inc. has credit sales of $100.000 for the month ended May 31. The Accounts Receivable balance is $8,000. Management estimates that 1% of its credit sales will be uncollectible. This adjusting entry includes a debit to ______

Bad Debt Expense and credit to Allowance for Doubtful Accounts for $1,000

A sale on account is recorded with a debit to _____ _____ and a credit to ____ _____

Blank 1: Accounts Blank 2: Receivable Blank 3: Sales Blank 4: Revenue

Which company has the higher receivables turnover ratio?

Both are the same

True or false: The adjusting entry to record Bad Debt Expense includes a credit to Accounts Receivable.

False

Which of the following is recorded with a debit to Cash and a credit to Interest Receivable?

The receipt of an interest payment for interest previously recorded

During the year, ABC Corp. realizes that a particular customer will never pay. What action should ABC take?

Write off the uncollectible account and its corresponding allowance from the accounting records.

The adjusting entry to record the estimated amount of bad credit sales is a debit to Bad Debt Expense and a credit to ____ ____ ____ _____

allowance for doubtful accounts

Accounts Receivable represent ____

amounts owed to a business by its customers

Using the allowance method, Bad Debt Expense is recorded___

as an estimate in the period of the related credit sales

The adjusting entry to record the estimated amount of bad credit sales is a debit to ___ ___ ___ and a credit to Allowance for Doubtful Accounts.

bad debt expense

The advantage of extending credit to customers is that it helps customers to buy products and services, thereby increasing the seller's revenue. The disadvantages of extending credit are costs related to ____.

bad debt expense

The entry to record the issuance of a note receivable is

debit notes receivable, credit cash

When using the allowance method, the adjusting entry to record estimated bad debt expense includes a ___

debit to Bad Debt Expense credit to Allowance for Doubtful Accounts

On March 1, Scents, Inc. lent $1,000 to an employee at a rate of 6% for 3 months. Scents' entry to record the loan of $1,000 to its employee includes a ______.

debit to Notes Receivable of $1,000 credit to Cash of $1.000

The correct journal entry for the collection of a note receivable includes a ___. Assume the collection of interest is recorded separately.

debit to cash credit to notes receivable

An employee paid a company back for amounts the company lent 3 months earlier. The company would record the collection from the employee by ______.

debiting Cash and crediting Notes Receivable

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

effectiveness in granting and collecting credit

A company's bad debt expense reports the

estimated amount of this period's credit sales that customers will fail to pay

If the Allowance for Doubtful Accounts has a credit balance prior to recording the adjusting entry for the current period's uncollectible accounts, then the ____

estimated amount of uncollectibles was greater than the amounts actually written off

The 2 steps required using the allowance method, are to

first make an end-of-period adjustment to record the estimated bad debts later write-off specific customer balances when they are known to be uncollectible

Notes Receivable differ from Accounts Receivable in that Notes Receivable

generally charge the borrowers interest from the day they are signed to the day they are collected

Sales on account

increase assets and stockholders' equity increase Accounts Receivable on the balance sheet and Sales Revenue on the income statement

The receivables turnover ratio gives information on how

many times the company sells and collects amounts on account per year

When accounting for accounts receivable and bad debts, the objectives are to ____.

match the cost of bad debts to the accounting period in which the related credit sales are made report accounts receivable at the net realizable value which equals accounts receivable less the amount the company does not expect to collect.

The receivables turnover ratio is computed as

net sales revenue divided by average net accounts receivable

When accounting for accounts receivable, a primary objective is to

not overstate assets and stockholders' equity by the estimated amount of bad debt

Allowance for Doubtful Accounts is a

permanent account so its balance carries forward to the next accounting period

The adjusting entry to record the allowance for doubtful accounts causes total

stockholders' equity to decrease assets to decrease

The entry that includes a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable is a(n) ______.

write-off of a specific customer's account

Which method requires first estimating the desired amount for the Allowance for Doubtful Accounts and then determining the amount of the expense required to get to this desired balance given the amount of the unadjusted balance?

Aging of accounts receivable method

Which of the following statements is true? - Bad Debt Expense on the income statement will always equal the Allowance for Doubtful Accounts on the balance sheet. O Bad Debt Expense is a permanent account. - An adjusting entry to record the estimated bad debt requires a debit to Allowance for Doubtful Accounts and a credit to Bad Debt Expense. - Allowance for Doubtful Accounts in a permanent account

Allowance for Doubtful Accounts is a permanent account

What would be the effect of forgetting to record the adjusting entry for estimated bad debts?

Assets and stockholders' equity would be overstated.

What is the entry a company records at the time it issues a $1,000, 6% note to one of its employees that the employee needs to repay in 6 months?

Credit Cash Debit Notes Receivable

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

Why is the Bad Debt Expense on the income statement less than the Allowance for Doubtful Accounts on the balance sheet?

The Allowance for Doubtful Accounts had an unadjusted credit balance.

In which situations does a company issue a note receivable?

The company lends money to employees or businesses. The company converts an existing account receivable to grant the customer an extended payment period for the amount owed plus interest.

Management estimates that 1% of the $100,000 of credit sales will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted credit balance. The adjusting entry to record estimated bad debts includes a

credit to Allowance for Doubtful Accounts of $1.000 debit to Bad Debt Expense of $1,000

Net sales revenue is $730,000. Beginning and ending net accounts receivable are $62.000 and $58.000 respectively Calculate the das to collect

30

Delectable, Inc.'s unadjusted trial balance includes Accounts Receivable of $10,000; Allowance for Doubtful Accounts of $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

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

What is occurring it a company is debiting Cash and crediting Notes Receivable?

It is collecting the principal on amounts lent earlier.

Accepting only cash and canceling a credit card program that previously allowed customers to purchase merchandise on credit may cause ______. (Check all that apply.)

Sales to decrease and Bad Debt Expense to decrease

Allowance for Doubtful Accounts is a(n) ____ -asset account and has a normal ____ balance

contra, credit

The allowance method is a method of accounting that ____ for estimated bad debts.

decreases net accounts receivable

Rank companies A-C based on how favorable their receivables turnover ratio is (from most favorable on top to the least favorable)

B A and C

The journal entry for the direct write-off method includes a

credit to Accounts Receivable debit to Bad Debt Expense

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

If a company writes off a specific customer's account with a debit to Bad Debt Expense and credit to Accounts Receivable, it must be using the ______ method.

direct write-off

Which method requires estimating the amount of the Bad Debt Expense and then determining the balance in the Allowance for Doubtful Accounts which will differ from the expense if there is an unadjusted balance?

percentage of credit sales method

True or false: GAP require end-of-period adjustments for the estimated bad debts in the period of the credit sale even though the specific, non-paying customers have not yet been identified.

True

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

credit to Allowance for Doubtful Accounts of $900 debit to Bad Debt Expense of $900

Using its aging of accounts receivable, Age Old, Inc. estimates that $90,000 of its $4,000,000 of accounts receivable will be uncollectible. Prior to making its adjusting entry, the unadjusted Allowance for Doubtful Accounts has a credit balance of $1,000. After the adjustment, the ____.

Allowance for Doubtful Accounts will have a $90.000 credit balance