Chapter 8 AC 210

Record a Write off

Dr. ADA Cr. Accounts Receivable

Keystone Corp. learns that Joe Smith, who owes them $4,000, has filed for bankruptcy and it is unlikely that he will be able to pay off his account. What entry should Keystone make?

dr. accounts receivable cr. ADA Dr. Cash cr. AR

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

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 debit balance of $1,000. After the adjustment, Bad Debt Expense on the income statement will be ______ the Allowance for Doubtful Accounts on the balance sheet.

greater than

Using the aging of receivables method, an unadjusted Allowance for Doubtful Accounts will have a debit balance when the amount of write offs recorded during the period is ______ the amount estimated to uncollectible in the prior accounting period.

greater than

disadvantages of extending credit?

increase wages cost(paying someone to manage) delay cash collection(have to wait till you receive cash) bad debt expense(cost of extending credit)

Using the aging of receivables method, an unadjusted Allowance for Doubtful Accounts will have a credit balance when the amount of write offs recorded during the period is ______ the amount allowed in the prior accounting period.

less than

unadjusted ada

subtract credit

Using the aging approach, management estimates that 10% of the $10,000 of Accounts Receivable will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted credit balance. After the bad debt 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

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, aging method is subtracting, adjusting a credit balance is adding.

Year-end balances for Keystone Corp. show Accounts Receivable $90,000; Sales $840,000; and Sales Returns & Allowances $40,000. If Allowance for Doubtful Accounts has a credit balance of $500 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be .75% of net sales. What amount should be reported as Net Accts Receivable for each?

Ar = 90,000 ADA = 6,000 + 500 on cred. = 6,500 Sales = 840k SR&A = 40,000 Net Sales = 40k BDE = Net sales * 0.0075 = 6,000. Dr. Bad Dept Expense 6,000 Cr. ADA 6,000 Net Ar = AR(90,000) - ADA (6,500) = 83,500

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 ______. (Select all that apply.)

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

Accounts Recovery

Collection of a previously written off accounts and its acounted for in 2 parts. 1. put receivable back on books by recording opposite of write off 2. Record collection of account, giving half of what they owed.

Allowance for Doubtful Accounts of $2,050 credit balance Bad Debt Expense of $2,000

Delectable, Inc.'s unadjusted trial balance includes Accounts Receivable of $10,000; Allowance for Doubtful Accounts of $50 credit balance; and Sales Revenue of $100,000 (all on credit). Management estimates that 2% of credit sales will be uncollectible. Delectable's financial statements will show ______. (Check all that apply.)

If Allowance for Doubtful Accounts has a credit balance of $500, journalize the adjusting entry for bad debt expense.

Desired Eb in ADA = 4700 Bad Debt Expense 4200 ADA. 4200

Record Account Recovery - unlikely to pay off, but pays

Dr. Accounts Receivable Cr. ADA Dr. Cash Cr. AR

Net Sales

NET SALES = revenues - discounts - returns - allowances

Allowance method

Record an adjustment at the end of each period to allow possibility for future uncollectible accounts. The entry to record bad debts reduces both net AR and Net income

Net AR

a subtotal that the company expects to collect. AR - ADA = Net AR

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 ______. (Check all that apply.)

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

Receivable Write Off

when a customer will never pay, the company will remove it from customers account from AR.

Allowance for Doubtful Accounts(BS, perm)

-Tracks from AR overtime -can go up and down -The amount of AR we do not expect to collect (contra AR) Balance carries forward year to year, overall collection.

Management estimates that 1% of the $100,000 of credit sales will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted debit 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 greater

Percentage of credits sales (income statement app.)

Credit sales (120,000) * bad dept expense Rate (0.0075) = 900 BDE BS- total accounts receivable * estimated uncollectible % = estimated uncollectible.

Record estimate of bad debts

Dr. Bad Dept Expense Cr. ADA credits sales * BDERate = BDE

What information is provided by the receivables turnover ratio? (Check all that apply.)

The number of times the average receivables balance is collected during the period That a higher ratio means faster (better) turnover

Bad Debt Expense (inc state, temp)

Tracks amt of AR not to be paid, estimation

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 ______. (Select all that apply.)

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

advantages of extending credit ?

increases sellers revenue,