Chapter 5 SB

Accounts receivable should be classified as a(n)?

asset

The allowance method estimates?

uncollectible accounts

The direct write-off method is used when:

uncollectible accounts are not anticipated or are immaterial

True or False Collecting cash on an account previously written off has no effect on total assets and no effect on net income

True

Net revenues is calculated as total revenues minus which 3 items?

1. sales discount 2. Sales allowances 3. Sales returns

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

sales return

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

True or false The receivables not expected to be collected should not be counted in assets of the company?

True

true or false notes receivable are more formal credit arrangements evidenced by written debt instrument, or note

True

Trade discount is?

A percentage reduction from list price.

Ophelia Inc. just learned that Patton Inc., one of its customer with an outstanding accounts receivable balance, filled for bankruptcy. Assuming that the company utilizes the allowance method, Ophelia should record a(n):

Decease in Accounts Receivable

Where is a note receivable reported in the balance sheet?

In either current or concurrent assets, as appropriate.

True or False The older the account the less likely it is to be collected.

True

An informal credit arrangement with a customer for payment to be received after the sale is classified as a(n)?

account receivable

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

accounts receivable

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

recognize bad debts earlier

When uncollectible accounts are not anticipated or are immaterial, which method is used?

the direct write-off method

When the direct write-off method is used, when is an entry for bad debt expense required?

When the account receivable is determined to be uncollectible.

The account "Allowance for Uncollectible Accounts" is classified as:

a contra asset to accounts receivable

(fill in the blank) A cash discount representing a reduction in the amount to be paid by a credit customer if the customer pays within a specific period of time is also referred to as a(n)________1________ discount.

1. sales OR cash

Receivables not expected to be collected should NOT:

Not be counted in assets of the company

What is a formal arrangement between a creditor and debtor called?

Note receivable

As appropriate, either current or noncurrent assets are reported in the balance sheet as?

a note receivable

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

allowance method

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 Why? Accounts receivable - uncollectible account = accounts receivable balance $20,000 - $2,000 =$18,000

the accounts receivable account is reduced when the seller:

determines that a specific customer account will not be collectible

(fill in the blank. one word per blank) Under the allowance method, companies estimate _______1_______ uncollectible amounts and report those estimates in the ________2________ year.

1. future 2. current

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

1. receivable turnover ratio 2. average collection period

Fill in the blank. (one word per blank) Total revenues less discount, returns, and allowances are referred to as _______1._______ revenues.

Net

what is a Downside of extending credit to customer?

Not all customer will pay fully on their accounts

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 Why? receivables - uncollectible = net accounts receivable $100,000 - $7,000 = $93,000

Joyce Corp. uses the percentage-of-recivables 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? (2 entries)

1. Debit to Allowance for Uncollectible Accounts 2. Credit to Accounts Receivable

The sales allowance ______1______ the amount owned by the customer for merchandise that is _______2_____

1. Decreases 2. retained

A trade scout is a reduction from the list price, which is used to: (Hint 3 things)

1. Disguise real prices from competitors 2. change prices without publishing a new catalog 3. give quality discount to customers

(fill in the blank) The allowance method is required by_______1________

1. GAAP

(fill in the blank. 1 word per blank) The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the _________1________ method of accounts receivable.

1. aging, age, or ages

(fill in the blank. one word per blank) Receivables not expected to be collected should initially included as ________1________ and then be __________2__________ off when the customer does not _______3_________.

1. assets 2. written 3. pay

The journal entry to record bad debt expense includes which two entries?

1. debit to bad debt expense 2. credit to allowance for uncollectible accounts

Two entries are required when a previously written off account is collected. These two entries include:

1. reinstate the account receivable 2. record the collection on the account 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

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

Allowance method

When an account previously written off is collected in full, which is required to ensure the accounting for the compete 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 concurrent asset

Accounts receivable are typically classified as current assets because?

Because they will be converted to cash within 1 year

When the allowance method is used, the wire-off of an uncollectible account:

Decreases net income Why? Because bad debt expense has already reduced net income

The allowance for uncollectible accounts is a contra account to:

accounts receivables

The Accounts Receivable account is reduced when the seller adopts which method?

adopts the allowance method

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

asset

Allowance for Uncollectible Accounts has a credit balance because it is what type of account?

contra-revenue

The account "Allowance for Uncollectible Accounts" normally has what type of balance?

credit or CR

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

credit 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:

debt Allowance for uncollectible Accounts

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

effectiveness in managing receivables

formal signed credit agreement between a lender and a borrowers is called a(n) ______________ by the lender.

note receivable

partial adjustment to the amount owed by the customer for goods that were not retired, but did not fully meet the customers Expectations is referred to as a sales...?

sales allowance

A discount in the amount to be paid if the customer pays within a specified time period?

sales discount

True or False notes receivable are similar to accounts receivable

true

Fill in the blank. (one word per blank) When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n)_______1.__________ ________2.__________

1. sales 2. return

Sales to customers in which the customer pays within 30 to 60 days are referred to as? 2 terms

1. sales on account AND 2. credit sales

The cost of estimated accounts receivable that will to be collected is referred to as ________1________ ___________2_________ expense.

1. uncollectible, bad, or delinquent 2. accounts, account, or debt

Fill in the blank. (one word per blank) A(n) _________1________ __________2_________ is the legal right to receive cash from a credit sale and represents an asset of the company.

1.account, trade, OR accounts 2. receivable or receivables

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

False Why? Because receivables not expected to be collected are NOT included in assets.

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

The allowance for uncollectible accounts is contra account to

sales allowance

Pixie Inc. writes off a specific accounts receivable. If Pixie is using the allowance method, how will the write off affect the net income?

there is no affect

True or False Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to be more accurate

True