SB5

Recording sales returns and allowances in a separate contra-revenue account helps managers

Keep track of the amounts

The account "Allowance for Uncollectible Accounts" is classified as

a contra asset to accounts receivable.

The percentage-of-receivables method of estimating bad debt applies ____ to _____.

a single percentage; accounts receivable

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

net

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

not affect

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

aging, age, or ages

Fill in the blank - A sales return occurs when a customer returns a product for a full refund, whereas a sales ___________ is when the customer keeps the product and obtains a partial refund

allowance

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

allowance method

"Net credit sales" refers to credit sales net of:

allowances discounts returns

An account receivable is normally classified as

an asset

The direct write-off method is required for

income tax purposes

A calendar-year-end company that accepts a 3-month interest-bearing note on December 1 must accrue _____ revenue on December 31.

interest

(Face value x annual interest rate x fraction of the annual period) is the formula for

interest on a note

Companies extend credit to customers and sell goods on account because

it increases sales.

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

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.

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

A(n) _____ receivable typically yields interest revenue and possesses a fairly high probability of collectibility.

notes or note

For accounts receivable, the longer an account is outstanding,

the more likely it will prove uncollectible.

The average collection period is an estimate of

the number of days the average account receivable balance is outstanding.

The receivables turnover ratio indicates

the number of times during a year that the average accounts receivables were collected.

Accounts receivable are typically classified as current assets because

they will be converted into cash within 1 year

The amount of cash owed to a company by its customers from the sale of goods or services is referred to as

Accounts receivable

On November 1, year 1, ABC, Inc., received a 3-month, 8%, $1,500 note receivable with interest and principal to be collected on February 1 of year 2. What is the amount of interest revenue that should be recorded for year 1?

$20

Where is a note receivable reported in the balance sheet?

In either current or non current assets, as appropriate.

On Sept 1, year 1, Parnell Inc. received a 6-month, 6%, $2,000 note receivable with interest and principal to be collected on March 1 of year 2. What is the amount of interest revenue that should be recorded for year 1?

$40

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 non current asset

The percentage-of-receivables approach to measuring bad debt expense is referred to as _____ method.

Balance Sheet

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

sales allowance

Choice A customer receives a partial refund of the sales price after the customer discovers a flaw in the merchandise. The customer keeps the merchandise.

The Sales Returns and Sales Allowances accounts are classified as

Contra revenue accounts

Adrian Corp. sells goods on account for $100,000 on May 1. On May 15, the customer returns $40,000 of the merchandise. The customer has not yet paid for any of the goods. What will Adrian record on May 15?

Credit to Accounts Receivable. Debit to Sales Returns.

Claire provides $100 of services to customers on account with terms 2/10, n/30. The Service Revenue account is credited for $100. If the customer pays within 10 days, Claire will record which of the following?

Debit Cash $98 Credit Accounts Receivable $100 Debit Sales Discount $2

On March 5, Oak Corp. provided services on account to Pine. Oak agreed to accept a $100,000, 8%, 6-month interest-bearing note from Pine in payment for the services. The entry required on Oak's books on March 5 would require which of the following entries?

Debit Notes Receivable $100,000; credit Service Revenue $100,000.

Bell provides $500 of services to customers on account with terms 3/10, n/30. The Service Revenue account is credited for $500. If the customer pays within 10 days, Bell will record which of the following?

Debit Sales Discount $15

Warner Corp. sells goods on account for $10,000 on April 2. On April 20, the customer returns $3,000 of the merchandise. The customer has not yet paid for any of the goods. What is the entry Warner will make on April 20 when the goods are returned?

Debit Sales Returns; credit Accounts Receivable.

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

Fill in the blank: A sales allowance _____ the amount owed by the customer for merchandise that is _____ by the customer.

Decreases, retained

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

When a company has earned interest in the current period but has not yet recorded the interest, what type of adjustment is the company required to make?

Make an adjusting entry at the end of the current period to accrue the interest earned.

Fill in the blank - Total revenues less discounts, returns, and allowances are referred to as ________ revenues

Net

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

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

Sales on account, credit sales

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

Sales return

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

Sales returns Sales discounts Sales allowances

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.

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

change prices without publishing a new catalog give quantity discounts to customers disguise real prices from competitors

The ratio that shows the approximate number of days the average accounts receivable balance is outstanding is referred to as the average _____ _____.

collection period

Sales Returns and Sales Allowances are_____ _____ revenue accounts and require a debit entry to increase the account.

contra revenue

Sales returns and sales allowances are what type of accounts?

contra revenue

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

contra-asset

The account "Allowance for Uncollectible Accounts" normally has a _______ balance.

credit

A _____ balance before adjustment indicates that the estimate of uncollectible accounts at the beginning of the year may have been too high.

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

The amount of net credit sales is reported on the

income statement

Adrian Corp. sells goods on account for $100,000 on May 1. The customer paid for the goods on May 10. On May 15, the customer returns $40,000 of the merchandise. The entry Adrian makes on May 15 will include the following

credit to Cash, debit to Sales Returns

The journal entry to record bad debt expense includes

credit to allowance for uncollectible accounts debit to bad debt expense

A disadvantage to selling on account is

customers do not always pay.

Shannon determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account will include

debit Allowance for Uncollectible Accounts.

A(n) _____ balance before adjustment indicates that the estimate of uncollectible accounts at the beginning of the year may have been too low.

debit or DR

On June 1, Tulip Corp. provided services on account to Daffodil. Tulip agreed to accept a $40,000, 10%, 3-month interest-bearing note from Daffodil in payment for the services. The entry required on Tulip's books on June 1 would include a

debit to Notes Receivable, $40,000.

Kilroy Corporation provides services to a customer for $1,000. The customer complained that there was a slight defect in the service. Kilroy granted the customer a $50 credit. Kilroy will record this adjustment to the sales price with a

debit to Sales Allowances $50.

Abby Fashions sells a suit to a customer for $600 on account. The day after the sale, the customer discovers that the jacket has a small stain on the back. Abby Fashions grants the customer a $60 credit. Abby Fashions will record

debit to Sales Allowances $60 credit to accounts receivable $60

York Inc. records a year-end adjustment for estimated sales returns and allowances. As a result of this entry, York's financial statements will change as follows

equity decreases; assets decrease

At the beginning of the year, Gerta Company's allowance account has a credit balance of $10,000. This may indicate that the

estimate of uncollectible accounts was too high.

At the beginning of the year, Blocker Company's allowance account has a debit balance of $10,000. This may indicate that the

estimate of uncollectible accounts was too low.

Gwendolyn uses the allowance method to account for uncollectible receivables. Gwendolyn should record _____ bad debt expense ______.

estimated; at the end of the year

The formula for calculating interest on a note is

face value x annual rate x fraction of the annual period.

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

future; current

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

has no effect on net income

What comparative advantages do notes receivables possess compared to other receivables?

higher likelihood of collectibility interest-bearing

Bad debt expense is reported on the

income statement

Bad debt expense is reported on the:

income statement

The _____ ratio shows the number of times during a year that the average receivable balance is collected.

receivables turnover

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

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

Green Company has net credit sales of $100,000, an asset turnover ratio of 4, and a receivables turnover ratio of 9. What is the average collection period?

40.6 days

Black Company has the following information: Receivable turnover-6 Inventory turnover-5 Asset turnover-3 Net credit sales-$500,000 What is the average collection period?

60.8 days

The allowance for uncollectible accounts is a contra account to

Accounts receivable

Accounts receivable are normally classified

In the balance sheets as an asset

sales return

a customer returns merchandise purchased during the month and receives a refund of the full sales price.

A trade discount is

a 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 financial statement effects of recording an allowance for estimated sales returns are that:

assets decrease net income decreases equity decreases

With the allowance method, bad debt expense is recorded

at the end of the period when bad debts are estimated.

For a typical credit sale, the seller records revenue

at the point of delivery

An aging schedule classifies accounts receivable based on

length of time outstanding.

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

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

sales

Which of the following is a discount in the amount to be paid if the customer pays within a specified time period?

sales discount

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

sales return

The two conditions that must exist for a sale and the related receivable to be recognized are

the company has provided goods or services to the customer. collection from the customer is probable.

The allowance method estimates

uncollectible accounts

The direct write-off method is used when

uncollectible accounts are not anticipated or are immaterial.