MGMT 200 chapter 5

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

credit sales.

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

credit sales. sales on account.

The journal entry to record bad debt expense includes:

credit to allowance for uncollectible accounts debit to bad debt expense

A sales allowance ____ the amount owed by the customer for merchandise that is _____ by the customer.

decreases; retained

The Accounts Receivable account is reduced when the seller:

determines that a specific customer account will not be collectible

Sales to customers in which the customers pay within 30 to 60 days are referred to as (Select all that apply.)

sales on account. credit sales.

The allowance method estimates

uncollectible accounts.

A customer account that is not expected to be collected is referred to as a bad debt or ____ account.

uncollectible, doubtful, or allowance

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.

On March 17, Fox Lumber sells materials to Whitney Construction for $12,000, terms 2/10, n/30. Whitney pays for the materials on March 23. What is the amount of net revenues (sales minus sales discounts) as of March 23?

$11,760.

On April 1, 20X1, Nelsen Inc. accepts a $100,000, 8% note. The note receivable and interest are due on March 31, 20X2 (one year later). Assuming Nelson Inc. has a December 31 year-end, on March 31, 20X2, Nelson Inc. will record interest revenue of:

$2,000.

Schmidt Company's Accounts Receivable balance is $100,000, its adjusted balance in Allowance for Uncollectible Accounts is $4,000, and its bad debt expense is $3,800. The net amount of accounts receivable is:

$96,000.

On August 4, Sanders provides services to Frederickson for $5,000, terms 3/10, n/30. Frederickson pays for the services on August 12. What amount would Sanders record as revenue on August 4?

5,000

At the beginning of the year, Dawnetta Fashions has total accounts receivable of $300,000. By the end of the year, Dawnetta reports total credit sales of $1,500,000 and total accounts receivable of $200,000. What is the receivables turnover ratio for Dawnetta Fashions?

6.0.

Use the information below to calculate net revenues. Service Revenue$100,000 Sales Discounts$2,000 Accounts Receivable$15,000 Sales Allowances$7,000 Cash$18,000

91,000

Using the allowance method, the entry to record a write-off of accounts receivable will include

A debit to Allowance for Uncollectible Accounts.

The entry to record the estimate for uncollectible accounts includes:

A debit to Bad Debt Expense.

The effect of writing off a specific account receivable is:

A reduction in the Allowance for Uncollectible Accounts.

When a company provides services on account, which of the following accounts is debited?

Accounts Receivable.

A partial adjustment to the amount owed by the customer for goods that were not returned, but did not fully meet the customer's expectations is referred to as a sales

Allowance

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

Accounts receivable are best described as

Assets of the company representing the amount owed by customers.

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

A sales discount is recorded by the seller as a(n):

Contra revenue.

A company has the following aging schedule of its accounts receivable with the estimated percent uncollectible: Age Group Amount Receivable Estimated Percent Uncollectible Not yet due $175,000 4% 0-60 days past due $40,000 10% 61-120 days past due $10,000 30% More than 120 days past due $5,000 60% Assuming the balance of Allowance for Uncollectible Accounts is $3,000 (credit) before adjustment, which of the following would be recorded in the year-end adjusting entry?

Debit Bad Debt Expense for $14,000.

On January 18, a company provides services to a customer for $500 and offers the customer terms 2/10, n/30. Which of the following would be recorded when the customer remits payment on January 25?

Debit Sales Discount for $10.

Joyce Corp. uses the percentage-of-receivables 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?

Debit to Allowance for Uncollectible Accounts Credit to Accounts Receivable

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

False

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.

Under the direct write-off method, uncollectible accounts are recorded:

In the period the account is determined actually uncollectible

What are the financial statement effects of recording bad debt expense using the allowance method?

Increase expenses Decrease assets

If a company uses the allowance method of accounting for uncollectible accounts and writes off a specific account:

Net accounts receivable do not change.

Net revenues is calculated as total revenues minus which of the following items?

Sales allowances Sales returns Sales discounts

A trade discount is

a percentage reduction from list price.

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

account receivable.

The allowance for uncollectible accounts is a contra account to

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

Accounts receivable should be classified as a(n)

asset

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

average collection period receivable turnover ratio

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.

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

contra-asset

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

effectiveness in managing receivables

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

has no effect on net income

Recording bad debt expense:

increases expenses decreases assets decreases net income

Total revenues less discounts, returns, and allowances are referred to as ____ revenues.

net

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.

When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called

sales return

Accounts receivable are typically classified as current assets because

they will be converted to cash within 1 year.

On December 31, the Accounts Receivable ending balance is $80,000. Assume that the unadjusted balance of Allowance for Uncollectible Accounts is a credit of $500 and that the company estimates 7% of the accounts receivable will not be collected. The amount of bad debt expense recorded on December 31 will be:

$5,100.

On December 31, the Accounts Receivable ending balance is $80,000. Assume that the unadjusted balance of Allowance for Uncollectible Accounts is a debit of $500 and that the company estimates 7% of the accounts receivable will not be collected. The amount of bad debt expense recorded on December 31 will be:

$6,100.

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