ACC CH 8 Videos & practice

based on an aging of accounts receivables, management assigned 1% to the $100,000 of receivables 0-30 days outstanding. 5% to the $100,000 receivables 31-60 days and 20% to the $1,000 of receivables over 60 days. After making the adjusting entry the balance in the allowance for doubtful accounts will equal _.

$1,700

A company lends $1,000 each to two employees at a rate of 6% on December 1. One employee is to repay the note in 3 months and the other in 6 months. At December 31, how much interest will the company accrue?

$10

Which of the following are advantages of using national credit cards?

(1) Avoid lengthy cash collection periods and (2) reduction of bad debts expense

In which situations does a company issue a note receivable?

(1) The company loans money to employees of businesses, (2) The company converts an existing account receivable to a note receivable to allow an extended payment period

By comparing the number of days to collect with the length of the credit policy, companies can infer that customers ________ if the days to collect is high.

(1) may be dissatisfied with the product or service (2) are more likely to default.

Which of the following are considered disadvantages of allowing customers to purchase goods on credit?

1. A delay in cash collections 2. Bad debt costs 3. Increases wage costs to determine if customers are creditworthy 4. Increased wage costs resulting from the collection process

Which of the following statements about credit sales are true?

1. Accounts receivable arise from credit sales 2. Accounts receivable should be reported at net realizable value. 3. Revenue is reported when the company fulfills its promise to transfer control of a good or service to a customer

What accounts are included in the entry to accrue interest earned but not yet received?

1. Interest receivable 2. Interest Revenue

Which of the following are the steps followed by the allowance method?

1. Record the estimated bad debts in the period credit sales occur using an end-of-period adjustment 2. Write- off specific customer balances when they are known to be uncollectible

The objectives when accounting for accounts receivable and bad debts are to ______.

1. Report Accounts Receivable at the amount the company expects to collect (net realizable value) 2. Match the cost of bad debts to the accounting period in which the related credit was made.

Which of the following describe a note receivable?

1. Specified interest rate 2. Specified maturity date 3. Stronger legal claim 4. More formal way of extending credit

allowance for doubtful accounts is a ______ asset account and has normal ______ balance.

1. contra 2. credit

Which of the following statements about the receivables turnover ratio is true?

A higher receivables turnover ratio means faster (better) turnover

_______ Receivable arise from making sales to customers on account and are non-interest bearing. _________ Receivable are formal written contracts that are interest bearing.

Accounts Notes

Which of the following is a permanent account whereby the ending balance of the prior accounting period equals its beginning balance of the next.

Allowance for Doubtful Accounts

Credited in the adjustment to record estimated bad debts

Allowance for doubtful accounts

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. The adjusting entry to record estimated bad debt includes a ______.

Credit to Allowance for Doubtful Accounts of $1,000 Debit to Bad Debt Expense of $1,000.

The entry to record lending $1,000 to an employee at a rate of 6% for 8 months includes a ______.

Credit to cash of $1,000 Debit to Notes Receivable of $1,000.

The entry to record write-off of a specific customer's account requires a _______.

Debit to Allowance for Doubtful Accounts Credit to Accounts Receivable

The 2 steps required using the allowance method, are to _______.

First make an end-of-period adjustment to record the estimated bad debts. Later write-off specific customer balances when they are known to be uncollectible.

What is the formula for calculating interest on a note receivable?

Interest = Principal × Interest Rate × Time

Why would a company debit interest receivable?

It generated interest on its notes receivable which will be collected in a later accounting period

direct write-off method

Not GAAP

An adjusting entry to accrue for interest earned is often needed when a company has _______.

Notes Receivable

Which of the following is the term used to describe the process of selling and collecting?

Receivables turnover

Accepting only cash and cancelling a credit card program that previously allowed customers to purchase merchandise on credit may cause _____.

Sales to decrease and Bad Debt Expense to decrease

Percentage of credit sales

Simpler to apply but less accurate

Which of the following statements about the days to collect is true?

The days to collect measures the average number of days from sale on account to collection

What is the effect of a write-off of a specific customer's account on net receivables on the balance sheet.

The net receivable balance is the same.

What information is provided by the receivables turnover ratio?

The number of times receivables turn over during the period, and that a higher ratio means faster (better) turnover.

What effect does the collection of a note receivable, excluding interest, have on the accounting equation?

Total assets remain the same

aging of accounts receivable

Uses more detailed data and is more accurate

The entry that includes a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable is a(n)....

Write off of a specific customer's account.

A(n) ________ of accounts receivables method is based on the amount of days the receivables have been unpaid.

aging

A permanent account

allowance for doubtful accounts

its balance carries forward from one accounting period to the next

allowance for doubtful accounts

Accounts Receivable represent _________.

amounts owed to a business by its customers

When a company lends money to employees at a rate of 4%, the company will record ________.

an asset called Notes Receivable

Increased by a debit

bad debt expense

The adjusting entry to record the estimated amount of bad credit sales is a debit to ______ ______ ________ and a credit to Allowance for Doubtful Accounts.

bad debt expense

The correct journal entry for the collection of a note receivable includes a ______.

credit to notes receivable debit to cash

The allowance method is a method of accounting that _____ for estimated bad debts.

decreases net accounts receivable

The _______ write- off method is not allowed under GAAP.

direct

A company's Bad Debt Expense reports the ______.

estimated amount of this period's credit sales that customers will fail to pay

The allowance for doubtful accounts T-account will have the _______ on the credit side.

estimated bad debts from the adjusting entry

The entry to record a write-off of a specific customer's account _______ when using the allowance method.

has no net effect on total assets, liabilities or stockholders equity

What is occurring if a company is debiting cash and crediting notes receivable.

it is collecting the principal on amounts lent earlier.

Notes receivable are used for _______.

lending money to individuals or businesses, extending payment periods, selling large-value items

The receivables turnover ratio is computes as ________.

net sales revenue divided by average net accounts receivable

collection of a previously written-off account is called a(n) _________.

recovery

Which of the following is recorded with a debit to Interest Receivable and a credit to Interest Revenue?

the adjusting entry to record interest earned but not yet received.