Financial Accounting Ch. 8
Which of the following statements regarding the allowance method of accounting for uncollectible receivables is incorrect? A. The business does not wait to see which customers will not pay when estimating the allowance for bad debts. B. Bad debt expense is not estimated. C. The allowance method is based on the matching principle. D. The Allowance for Bad Debts is used to hold the pool of "unknown" uncollectible accounts.
B. Bad debt expense is not estimated.
Under the Direct Write−Off Method, the expense account used when Accounts Receivable is removed from the books is _____________.
Bad Debt Expense
Accounts Receivable is reported on the balance sheet as ______________.
a current asset
A benefit to a business selling on account is ______________.
a potential increase in revenues
The balance sheet approach of estimating bad debts is the ________.
aging-of-receivables and percent-of receivables methods.
Most companies must use a method of accounting for bad debts that does a better job of matching revenues and expenses. This would be the _________.
allowance method
The _____________ is the method of accounting for bad debts required by GAAP.
allowance method
A receivable is a(n):
asset
One possible cost of extending credit is called ______________.
bad debt expense
Selling on account can result in a(n) ________ when customers do not pay.
cost
The Allowance for Bad Debts account on the balance sheet is ___________.
subtracted from Accounts Receivable
The two methods of accounting for uncollectible accounts receivable are ________.
the allowance method and the direct write−off method
When a company uses the allowance method to measure bad debts, ________.
the amount of bad debts expense is estimated at the end of the accounting period
Once an accounts receivable is written off _________.
the customer's accounts receivable is removed from the books
Patriots uses the percent−of−receivables method to determine bad debts expense. Given the following information, determine the amount of bad debts expense. Balance in Accounts Receivable $47,000 Balance in Allowance for Bad Debts (credit) $100 Net Credit Sales $200,000 Estimated percent of uncollectible receivables 4%
$1,780
After the December 31, 2025 adjusting journal entries have been posted, Sinclair Enterprises has the following account balances (all accounts have normal balances): Accounts Receivable $151,000 Allowance for Bad Debts $4,800 Bad Debts Expense $9,000 What is the net realizable value of Accounts Receivable as of December 31, 2025?
$146,200
After the December 31, 2025 adjusting journal entries have been posted, Sinclair Enterprises has the following account balances (all accounts have normal balances): Accounts Receivable $154,000 Allowance for Bad Debts $4,800 Bad Debts Expense $8,300 What is the net realizable value of Accounts Receivable as of December 31, 2025?
$149,200
A company reports net accounts receivable of $259,000 on its December 31, 2019 balance sheet. The Allowance for Bad Debts account has a credit balance of $30,000. What is the balance of Accounts Receivable?
$289,000
The following information is from the records of Classic Car Shop: Accounts receivable, December 31, 2018 $30,000 (debit Net credit sales for 2018 54,000 Accounts written off as uncollectible during 2018 4,900 Cash sales during 2018 48,000 The company uses the direct write−off method for bad debts. What is the amount of bad debts expense?
$4,900
Patriots uses the percent−of−receivables method to determine bad debts expense. Given the following information, determine the amount of bad debts expense. Balance in Accounts Receivable $43,000 Balance in Allowance for Bad Debts (credit) $200 Net Credit Sales $290,000 Estimated percent of uncollectible receivables 2%
$660
On March 10, Basics, Inc. sold $25,000 of merchandise to Jacobs, on account. Basics could not collect cash from Jacobs and wrote off the account. What is the journal entry to record the write−off, assuming Basic uses the allowance method?
(DR) Accounts Receivable—Jacobs 25,000 (CR) Bad Debts Expense 25,000
On December 6, King, Inc. sold $15,000 of merchandise to James, on account. King could not collect cash from James and wrote off the account. What is the journal entry to record the write−off, assuming King uses the allowance method?
(DR) Allowance for Bad Debts 15,000 (CR) Accounts Receivable—James 15,000
Which of the following is an example of exercising internal control over receivables? A. separating cash collection and credit approval duties B. extending credit to all customers who apply for credit C. combining the duties of the credit and accounting departments D. allowing credit department employees to collect cash from customers
A. separating cash collection and credit approval duties
ABC Company uses the allowance method and estimates bad debts using the percent−of−sales method. The company's management estimates that 3% of net credit sales will be uncollectible for the year 2025. Net credit sales for the year amounted to $240,000. What is the journal entry to record the estimated bad debts expense?
Debit Bad Debts Expense for $7,200; Credit Allowance for Bad Debts for $7,200
ABC Company uses the allowance method and estimates bad debts using the percent-of-aales method. The company's management estimates that 3% of net credit sales will be uncollectible for the year 2025. Net credit sales for the year amounted to $270,000. What is the journal entry to record the estimated bad debts expense?
Debit Bad Debts Expense for $8,100; Credit Allowance for Bad Debts for $8,100
A business maintains subsidiary accounts for each of its customers. On May 15, the business provides services on account: $1,800 to customer J. Anthony ; $4,800 to customer A. Martin; and $1,600 to customer S. Lee. Which journal entry is needed to record these transactions?
May 15 (DR) Accounts Receivable − J. Anthony 1,800 Accounts Receivable − A. Martin 4,800 Accounts Receivable − S. Lee 1,600 (CR) Service Revenue 8,200
A business maintains subsidiary accounts for each of its customers. On May 2, the business provides services on account of $2,000 to customer Mike Jones. Which journal entry is needed to record the collecting of $2,000 in cash from Jones on May 15?
May 15 (DR) Cash 2,000 (CR) Accounts Receivable − M. Jones 2,000
Accounts Receivable are usually collected _____________.
in a short period of time, such as 30 or 60 days.
The allowance method of accounting for uncollectible receivables _________.
is used to measure bad debts
For a company with significant uncollectible receivables, the direct write−off method is unsuitable because ________ for the current year.
it may overstate net income
The income statement approach of estimating bad debts is the ________.
percent−of−sales method.
Accounts receivable that are uncollectible must be _________.
removed from the books and written off
Jayson Enterprises uses the allowance method to account for uncollectible receivables. When an uncollectible account is written off, ________.
the write off has no effect on net income
To estimate the amount of bad debts expense when using the allowance method, companies use ________.
their past experience as well as considering the economy and the industry they operate in.
