Ch. 8 Quiz Questions

Which one of the following is part of the transaction that is recorded when an account is written off user the allowance method?

-Accounts Receivable is credited -Allowance for Doubtful Accounts is debited

Which of the following accounts is debited when a company factors its accounts receivable?

-Cash -Service Charge Expense

Which one of the following is NOT one of the principles of managing accounts receivable?

-Determining from which vendor credit should be requested -Cross-indexing journal-entries with the postings to the ledger

If a company collects from a customer after the customer's account has been written off as uncollectible, the company is said to recover the uncollectible account. When a company uses accrual basis accounting and it recovers an uncollectible accounts the recovery

-Does not affect the company's income in the period it is collected -Does not affect the company's total assets in the period it is collected

When a note receivable is paid on time and no interest has been previously accrued, what will the journal entry to record the transaction contain?

-One debit and two credits -A debit to Cash, a credit to Notes Receivable, and a credit to Interest Revenue

Which of the following is a threat of nonpayment from a single customer or class of customers that could adversely affect the financial health of a company?

A concentration of credit risk

If a company uses the allowance method for uncollectible accounts, then the entry to record writing-iff a customer's $800 account includes

A debit to Allowance for Doubtful Accounts for $800 and a credit to Accounts Receivable for $800

What type of receivable is evidenced by a formal instrument and normally requires the payment of interest?

A note receivable

Which one of these statements about promissory notes is incorrect?

A promissory note is not a negotiable instrument

Which of these statements about national credit card (e.g., Visa) sales is correct?

A retailer's acceptance of a national credit card is a form of factoring the receivable by the retailer

Under the direct write-off method of accounting for uncollectible accounts

A specific account receivable is decreased for the actual amount of bad debt at the time of the write-off

Offering discounts for early payment is a method used by companies to

Accelerate the collection of cash

Which of the following are used to compute cash realizable value?

Accounts Receivable and Allowance for Doubtful Accounts

Which of the following accounts might get debited when a note is dishonored?

Accounts receivable

Which of the following is a type of trade receivable?

Accounts receivable from customers

Which of the following is the correct sequence to report receivables on the balance sheet?

Accounts receivable, a 6-month note receivable, other receivables

Which one of the following account pairs are both permanent accounts?

Accounts receivable; Allowance for Doubtful Accounts

When the allowance method for uncollectible accounts is used, a company records Bad Debt Expense when

Adjusting entries are recorded

When the allowance method for uncollectible accounts is used, a company records Bad Debts Expense when

Adjusting entries are recorded

Under the allowance method, writing off an uncollectible account

Affects two balance sheet accounts

If a note is dishonored which of the following can happen?

All of the above

Which statement is true about reporting receivables on the balance sheet?

Allowance for Doubtful Accounts is shown as a deduction from Accounts Receivable on the balance sheet

Which of these is a generally accepted method for accounting for uncollectible accounts when a company has a significant amount of expected bad debt losses?

Allowance method for uncollectible accounts

Which one of the following is NOT a method used by companies to accelerate cash receipts?

Allowing customers to settle their accounts by issuing notes -Writing off receivables

Bad Debt Expense is reported on the income statement as

An operating expense

When is a receivable recorded by a merchandiser?

At the point of sale of the merchandise on account

Which one of the following accounts is a temporary account?

Bab Debts Expense

Which one of the following statements is true?

Bad Debts Expense is a temporary account and is closed at the end of the fiscal period, while Allowance for Doubtful Accounts is a permanent account and remains open at the end of the fiscal period

Using the direct write off method, which of the following accounts will be debited?

Bad debt expense

Short-term notes receivable are reported in the current assets section of the balance sheet at

Cash realizable value

Which of the following is calculated by subtracting allowance for doubtful accounts from accounts receivable?

Cash realizable value

At what value are accounts receivable reported on the balance sheet?

Cash/Net realizable value

If a company is concerned about lending money to a risky customer, which one of the following would it want to do?

Contact references provided by the customer, such as banks and other suppliers

The account Allowance for Doubtful Accounts is classified as a(n)

Contra account to Accounts Receivable

The Allowance for Doubtful Accounts is classified as a(n)

Contra asset to Accounts Receivable

When an uncollectible account is recovered after it has been written off, which of the following journal entries will be recorded first?

Debit Accounts Receivable and credit Allowance for Doubtful Accounts

When an uncollectible account is recovered after it has been written off two journal entries are recovered. Which of the following journal entries will be recorded second?

Debit Cash and credit Accounts Receivable

The adjusting entry to record estimated uncollectible accounts receivable using the allowance method includes a

Debit to Bad Debts Expense and Credit to Allowance for Doubtful Accounts

When an account is written off using the allowance method, accounts receivable

Decreases and the allowance account decreases

What is often the most critical part of managing receivables?

Determining who gets credit and who does not get credit

Writing-off a specific customer's accounts receivable under the allowance method

Does not affect the balance of Cash

The direct write-off method of accounting for bad debts

Does not require estimates of bad debt expense

If a company fails to record its estimated bad debts expense then its

Equity is overstated

At what amount is a short-term not receivable recorded on the issue date?

Face value

On the date a 90-day note is honored, how much cash will the payee receive?

Face value plus 90 days of interest

What is the maturity value equal to?

Face value plus interest

When an uncollectible account is recovered after it has been written off, two journal entries are recorded. Which of the following accounts will be credited in these two journal entries?

First the Allowance for Doubtful Accounts and second Accounts Receivable

When a merchandiser sells goods, it increases Accounts Receivable by debiting it and it _________ Sales Revenue by __________ it.

Increases; crediting

A debit balance in the Allowance for Doubtful Accounts

Indicates that actual bad debt write-offs have exceeded previous provisions for bad debts

Which of the following should be classified as an "other" receivable?

Interest receivable

The account called Allowance for Doubtful Accounts

Is deducted from accounts receivable on the balance sheet to compute cash realizable value

The direct write-off method of accounting for uncollectible accounts

Is not generally accepted as a basis for estimating bad debts

The balance of Allowance for Doubtful Accounts prior to recording the end of year adjusting entry to record Bad Debts Expense

Is relevant when using the percentage-of-receivables basis

A 120-note dated March 7, would mature on

July 5

Receivables are assets that must be reported in the order of ______?

Liquidity

Which of the following is the term used to describe the party that is borrowing the money when a note is issued?

Maker

One might infer from a debit balance in Allowance for Doubtful Accounts that

More accounts have been written off than the estimates for bad debts

Accounts receivable are reported in the current assets section of the balance sheet at

Net realizable value

When an account is written off using the allowance method, the

Net realizable value will stay the same

When an account receivable is written off using the allowance method, the

Net realizable value will stay the same

Which of the following is NOT one of the basic issues in accounting for notes receivable?

None of the above

In the adjusted entry to record being owed interest, which of the following accounts gets credited?

None of the above (Interest revenue)

The type of receivable that is usually evidenced by a formal instrument of credit is a(n)

Note receivable

Interest is almost always associated with

Notes receivable

Which of the following is not a step taken to reduce the consequences of lending money to a deadbeat?

Offering low interest rates to high risk individuals

If a company is concerned about lending money to a risky customer, which one of the following would it NOT want to do?

Provide the customer a lengthy payment method

Which of the following is true with regards to receivables?

Receivables are claims that are expected to be collected in cash

Factoring is the process of

Selling accounts receivable at a discount to another party

What type of account would Bad Debt Expense be?

Temporary

Under the allowance method of accounting for uncollectible accounts,

The net realizable value of accounts receivable in the balance sheet is the same before and after an account is written off

Which of these statements about national credit card (e.g., Visa) sales is INcorrect?

The retailer receives more cash when customers use national credit cards than when customers pay with cash instead of credit cards

If a company that uses the allowance method for uncollectible accounts collects an account receivable after having been previously written it off

There will be both a debit and a credit to accounts receivable

Under the allowance method for uncollectible accounts, when a year-end adjustment is made for estimated uncollectible accounts

Total assets decrease

Under the allowance method for uncollectible accounts, when a specific account is written off

Total assets will be unchanged

Accounts receivables that result from sales transactions are often called

Trade receivables

Under the direct write-off method of accounting for uncollectible accounts, Bad Debt Expense is debited

When an account is determined to be uncollectible

When is a receivable recorded by a service organization?

When service is provided on account

A promissory note will likely be used in all of the following settings except

When the party making the note is a high risk creditor