chapter 5 ACCT 2301

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 ($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 ($100,000-$7,000)

The allowance method is required by

GAAP

Where is a note receivable reported in the balance sheet?

In either current or noncurrent assets, as appropriate.

The direct write-off method is required for

income tax purposes.

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

note 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

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)

sales return

Accounts receivable are typically classified as current assets because

they will be converted to cash within 1 year.

Accounts receivable not expected to be collected should be counted in the assets of the company until they are later written off.

true

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.

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

future, current

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.

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

What is the formula for the receivables turnover ratio?

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

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(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.

The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the ____ method of accounts receivable.

aging

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

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.

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

allowance method

Accounts receivable should be classified as a(n)

asset

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 cost of estimated accounts receivable that will not be collected is referred to as ______ expense

bad debt

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

bad debt expense.

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

be more accurate.

Sales to customers in which the customers pay within 30 to 60 days are referred to as

credit sales and sales on account

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

credit sales.

The journal entry to record bad debt expense includes:

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

The Accounts Receivable account is reduced when the seller:

determines that a specific customer account will not be collectible

A trade discount is a reduction from the list price, which is used to:

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