Accounting 101 - Chapter 5 Lecture / Smartbook

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? Multiple select question. Debit Cash $98 Credit Accounts Receivable $100 Credit Cash $100 Debit Sales Discount $2 Debit Cash $100

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

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? Multiple choice question. Debit Sales Returns; credit Allowance for Uncollectible Accounts. Debit Bad Debt Expense; credit Accounts Receivable. Debit Sales Returns; credit Accounts Receivable. Debit Accounts Receivable; credit Allowance for Sales Returns.

Debit Sales Returns; credit Accounts Receivable.

Sales Allowances

If a customer does not return a product, but the seller reduces the customer's balance owed or provides at least a partial refund because of some deficiency in the company's product or service, we call that a sales allowance

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

Fog Corporation sells $5,000 goods on account. Salaries expense was $3,000. Sales returns were $100, and sales discounts were $300. Net sales were Multiple choice question. $4,600 $2,000 $4,900 $1,600

$4,600

James Corporation sells $1,000 goods on account. Sales returns were $40, and sales allowances were $50. Sales discounts for the period were $30. Net sales are Multiple choice question. $920 $910 $880 $950

$880 Reason: Sales minus sales discounts, returns, and allowances equals net sales. $1,000 - ($40 + $50 + $30) = $880.

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

Select all that apply What are the financial statement effects of recording bad debt expense using the allowance method? Multiple select question. Decrease expenses Increase expenses Increase assets Decrease assets Increase revenues

Increase expenses Decrease assets

Gwendolyn uses the allowance method to account for uncollectible receivables. Gwendolyn should record _____ bad debt expense ______. Multiple choice question. actual; when accounts are written off estimated; at the end of the year estimated; when accounts are written off actual; at the end of the year

The allowance method is a way for companies to estimate and record anticipated uncollectible accounts (bad debts) on their balance sheet to reflect a more accurate picture of accounts receivable.

one sentence simple definition of the allowance method

The allowance method is a way for companies to estimate and record anticipated uncollectible accounts (bad debts) on their balance sheet to reflect a more accurate picture of accounts receivable.

Sale discount terms example: The amount of the discount and the time period within which it's available usually are communicated in short-hand terms such as 2/10, n/30

The term "2/10," indicates the customer will receive a 2% discount if the amount owed is paid within 10 days. • The term "n/30," means that if the customer does not take the discount, full payment is due within 30 days. "two ten, net thirty"

A trade discount is Multiple choice question. an increase in the account receivable. a percentage reduction of the amount due for early payment. a rebate from the manufacturer. a percentage reduction from list price.

a percentage reduction from list price

A trade discount is Multiple choice question. a rebate from the manufacturer. an increase in the account receivable. a percentage reduction of the amount due for early payment. a percentage reduction from list price.

a percentage reduction from list price.

The percentage-of-receivables method of estimating bad debt applies ____ to _____. a single percentage; total sales various percentages; total sales various percentages; accounts receivable a single percentage; accounts receivable

a single percentage; accounts receivable

An informal credit arrangement with a customer for payment to be received after the sale is classified as a(n) Multiple choice question. nontrade receivable. prepaid receivable. note payable. account receivable.

account receivable

The allowance for uncollectible accounts is a contra account to Multiple choice question. accounts receivable. revenue. sales allowances. bad debt expense.

accounts receivable

The amount of cash owed to a company by its customers from the sale of goods or services is referred to as Multiple choice question. accounts receivable. uncollectible accounts. a guarantee. accounts payable.

accounts receivable

The term net accounts receivable refers to Multiple choice question. sales less sales discounts and sales returns and allowances. sales minus accounts receivable. sales minus cost of goods sold. accounts receivable less the allowance for uncollectible accounts.

accounts receivable less the allowance for uncollectible accounts.

Flounder Corp. provided $12,000 of services on account. The entry to record this transaction would include a debit to Multiple choice question. accounts payable. retained earnings. accounts receivable. sales.

accounts receivable.

Glasser Corp. provided $20,000 of services on account. When Glasser collects on the account, a credit is made to Multiple choice question. accounts payable. service revenue. cash. accounts receivable.

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. (Enter only one word.)

aging

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 Multiple choice question. discount. debit. allowance. credit.

allowance

A company that expects that some of its customers will not pay the agreed upon sales price must utilize the Multiple choice question. bad debt method direct write-off method debt forgiveness method allowance method

allowance method

An account receivable is normally classified as Multiple choice question. an expense. a revenue. a liability. an asset.

an asset

Accounts receivable should be classified as a(n) Multiple choice question. asset. revenue. liability. expense.

asset

Select all that apply 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: (Select all that apply.) Multiple select question. assets decrease equity increases liabilities increase assets increase liabilities decrease equity decreases

assets decrease equity decreases

With the allowance method, bad debt expense is recorded Multiple choice question. at the end of the period when bad debts are estimated. when the customer purchases the goods. when the customer returns the product. when the account becomes uncollectible.

at the end of the period when bad debts are estimated. Reason: The direct write off method records a bad debt when the debt becomes bad.

when the contract is signed. when all expenses are estimated. when cash is collected. at the point of delivery.

at the point of delivery.

The formula to compute the receivables turnover ratio is net credit sales divided by Multiple choice question. average accounts receivable. the receivable turnover ratio. average total assets. average accounts payable.

average accounts receivable.

The cost of estimated accounts receivable that will not be collected is referred to as

bad debt

The estimated expense for accounts that may not be collected is referred to as Multiple choice question. amortization expense. accounts receivable. sales discounts. interest expense. bad debt expense.

bad debt expense

A customer account that is not expected to be collected is referred to as a(n) _________ debt

bad!

Flounder Corp. sold $12,000 of services on account. When Flounder collects on the account, the transaction will include a debit to Multiple choice question. accounts receivable. cash. service revenue. retained earnings.

cash

Sales Returns and Sales Allowances are ______ _______ accounts and require a debit entry to increase the account

contra revenue

The sales discount account is classified as a(n) Multiple choice question. contra account to accounts receivable. asset account. expense account. contra revenue account.

contra revenue account

The Sales Returns and Sales Allowances accounts are classified as Multiple choice question. contra asset accounts. contra revenue accounts. contra liability accounts. contra equity accounts.

contra revenue accounts.

Allowance for Uncollectible Accounts has a credit balance because it is a(n) _____ account. Multiple choice question. liability asset expense contra-asset contra-revenue

contra-asset

The account "Allowance for Uncollectible Accounts" normally has a ________ balance

credit

When a business provides services to a customer, and the customer promises to pay later, this is referred to as Multiple choice question. cash sales. current sale. credit sales. operating sales.

credit sales.

Planters Corp. wrote off a customer's uncollectible account in April. In the following month, Planters collected from the customer in full. The entry to reinstate the account would require a

credit to Allowance for Uncollectible Accounts.

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: Multiple select question. credit to accounts receivable $60 debit to Sales Allowances $60 credit to Sales Allowances $60 credit to cash $60 debit to Cash $60 debit to Accounts Receivable $60

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

When Accounts Receivable show credit balances, the company should show these credit balances on the balance sheet as

current liability

At the end of the year, companies must record estimated contra revenues for estimated sales returns and allowances and sales discounts pertaining to Multiple choice question. both current year and future year sales. future sales only. current year sales only

current year sales only

At the end of the year, companies must record estimated contra revenues for estimated sales returns and allowances and sales discounts pertaining to Multiple choice question. current year sales only. future sales only. both current year and future year sales.

current year sales only.

A disadvantage to selling on account is Multiple choice question. it does not create an asset. the sale cannot be recorded until the customer pays. customers do not always pay. it is difficult to estimate sales.

customers do not always pay

uncollectable accounts

customers who do not pay their accounts (bad debts)

Shannon Corp. uses the aging method to account for bad debt expense. Shannon determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account will include Multiple choice question. debit Accounts Receivable. debit Allowance for Uncollectible Accounts. debit Bad Debt Expense. credit Sales Returns and Allowances.

debit Allowance for Uncollectible Accounts.

Select all that apply 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: (Select all that apply.) Multiple select question. debit to Sales Returns credit to Accounts Receivable credit to Cash credit to Allowance for Sales Returns debit to Sales Expense

debit to Sales Returns credit to Cash

The journal entry to record bad debt expense includes: (Select all that apply.) Multiple select question. debit to bad debt expense credit to bad debt expense credit to allowance for uncollectible accounts debit to allowance for uncollectible accounts

debit to bad debt expense credit to allowance for uncollectible accounts

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): Multiple choice question. increase in Allowance for Doubtful Accounts increase in Accounts Receivable decrease in Sales Revenue decrease in Accounts Receivable increase in Sales Revenue

decrease in accounts receiable

elect all that apply Recording bad debt expense: (Select all that apply.) Multiple select question. increases assets decreases assets increases net income decreases net income decreases expenses increases expenses

decreases assets decreases net income increases expenses

A sales allowance ____ the amount owed by the customer for merchandise that is _____ by the customer. Multiple choice question. decreases; returned. decreases; retained increased; retained increases; returned

decreases; retained

The Accounts Receivable account is reduced when the seller: Multiple choice question. records the allowance for uncollectible accounts determines that a specific customer account will not be collectible adopts the allowance method

determines that a specific customer account will not be collectible

Select all that apply The financial statement effects of recording an allowance for estimated sales returns are that: (Select all that apply.) Multiple select question. net income increases equity decreases assets increase net income decreases assets decrease equity increases

equity decreases net income 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 Multiple choice question. company's credit department is inefficient. estimate of uncollectible accounts was too high. company's credit policy was too lenient. estimate of uncollectible accounts was too low.

estimate of uncollectible accounts was too high.

Under the allowance method, companies estimate _____ uncollectible amounts and report those estimates in the _____ year. Multiple choice question. future; future current; future current; current future; current

future, current

Select all that apply A trade discount is a reduction from the list price, which is used to: (Select all that apply.) Multiple select question. reduce the sale price for interest received give quantity discounts to customers disguise real prices from competitors change prices without publishing a new catalog encourage customers to pay quickly

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

net realized value

he amount of cash the firm expects to collect accounts receivable should be recorded at net realized value

Accounts receivable are normally classified Multiple choice question. in the balance sheet as liabilities. in the income statement as other income. in the balance sheet as assets. in the income statement as revenue.

in the balance sheet as assets.

Recording sales returns and allowances in a separate contra-revenue account helps managers: Multiple choice question. improve financial statement ratios report higher assets keep track of the amounts report higher income

keep track of the amounts

An aging schedule classifies accounts receivable based on Multiple choice question. customer credit rating. past experience with customer. length of time outstanding. size of customer purchase.

length of time outstanding

Sales Discounts is a contra revenue account

meaning that is paired with the Revenue (sales) account on the income statement

The difference between total accounts receivable and the allowance for uncollectible accounts is referred to as: Multiple choice question. net accounts receivable gross accounts receivable realized accounts receivable

net accounts receivable

Income tax receivable is a Blank______. Multiple choice question. nontrade payable nontrade receivable trade payable trade receivable

nontrade receivable

nontrade receivables

receivables that originate from sources other than customers - Receivables from Employees - Due from Officer - similar titles

At the end of the year, Kunze Corporation estimates that $1,600 worth of merchandise sold during the current year will be returned by customers during the subsequent year. Kunze Corporation must Multiple choice question. issue a refund to customers during the current year. wait until the merchandise is returned by customers to record the returns. record the estimated returns at the end of the year.

record the estimated returns at the end of the year.

The contra revenue accounts sales returns and sales allowances Multiple choice question. reduce revenues. increase expenses. reduce expenses. increase revenues.

reduce revenues.

the sales discount account is a contra _________ account

revenue

Revenue Recognition Principle

revenue is recognized at the time of a credit sale

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? Multiple choice question. Quantity discount Trade discount Purchase discount Sales discount

sales discount

Select all that apply Sales to customers in which the customers pay within 30 to 60 days are referred to as (Select all that apply.) Multiple select question. sales on account. nonaccrued sales. deferred sales. credit sales.

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(n)

sales return

Glasser Corp. provided $20,000 of services on account. The account that should be credited is Multiple choice question. accounts payable. accounts receivable. service revenue. cash.

service revenue

accounts receivable represent

the amount of cash owed to the company by customers generally informal agreements supported by an invoice that require payment in a short period of time

When it becomes clear an account will not be collected

the amount should be written off to Allowance for Uncollectible Accounts NOT to Bad Debt Expense

Select all that apply The two conditions that must exist for a sale and the related receivable to be recognized are Multiple select question. the company has provided goods or services to the customer. the product must be delivered in 60 days. cash is received from the sale. collection from the customer is probable.

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

Accounts receivable are typically classified as current assets because Multiple choice question. they accrue interest at a specified interest rate. they are matched with accounts payable for the period. they will be converted to cash within 1 year. they are a formal agreement to pay within a specific period of time.

they will be converted to cash within 1 year.

Accounts receivable from sales to customers are Blank______ receivables. Multiple choice question. trade nontrade note

trade

The allowance method estimates Multiple choice question. trade discounts. sales discounts. uncollectible accounts. future sales.

uncollectible accounts

Accounts Receivable

ü Recorded on the Balance Sheet ü A current asset ü Arise from credit sales made to customers

The allowance method is required by

GAAP

Credit sales typically include an informal credit arrangement requiring payment within ______ days. Multiple choice question. 1-10 60-90 90-120 30 to 60 1-30

30 to 60

Payment for credit sales are typically due in _______ to _______ days.

30, 60

the allowance method

A method of accounting for bad debts that involves estimating uncollectible accounts at the end of each period. required for all publicly traded companies

Select all that apply When an account previously written off is collected in full, the entry to reverse the previous write-off would require which of the following? Multiple select question. Credit Allowance for Uncollectible Accounts. Credit Accounts Receivable. Debit Bad Debt Expense. Debit Accounts Receivable.

Credit Allowance for Uncollectible Accounts. Debit Accounts Receivable.

Kim Corporation sells goods to a customer on account for $1,000, terms 2/10, n/30. When the customer pays on the 20th day, Kim will record which of the following? Multiple choice question. Credit cash $1,000 Debit cash $980 Debit cash $1,000 Credit cash $980

Debit cash $1,000 Reason: The customer must pay the full amount if paid after 10 days.

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? Multiple select question. Debit Bad Debt Expense Credit Allowance for Uncollectible Accounts Debit to Allowance for Uncollectible Accounts Credit to Accounts Receivable

Debit to Allowance for Uncollectible Accounts Credit to Accounts Receivable

Sales Discounts:

Discounts given by seller to a buyer for early payment of the buyer's account

What is the formula for the receivables turnover ratio? Multiple choice question. Net credit sales divided by average accounts receivable (net). Average accounts receivable (net) divided by net credit sales. Average accounts receivable divided by average total assets. Net credit sales divided by average total assets.

Net credit sales divided by average accounts receivable (net).

The account "Allowance for Uncollectible Accounts" is classified as Multiple choice question. a contra asset to accounts receivable. a contra equity account. a liability account in the balance sheet. an expense in the income statement.

a contra asset to accounts receivable.

trade discount

Reduction from a list or catalog price that can vary for wholesalers, retailers, and consumers. usually 30 percent of more

If sales returns are incorrectly treated as expenses, what are the effects on the financial statements? (Select all that apply.)

Revenues are overstated. Expenses are overstated.

one sentence definition of sales allowances to dummies

Sales allowances are discounts or reductions in the amount a customer owes for goods or services due to issues like damaged products or other agreed-upon adjustments.

True or false: Credit sales tend to increase sales and profitability in the long-run. True false question.TrueFalse

True

Identify the likely disadvantages of extending credit to customers. (Select all that apply.) Multiple select question. Uncollectible accounts Lower sales revenue Delay in collecting accounts Lower net income

Uncollectible accounts Delay in collecting accounts

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 Multiple choice question. credit to Sales Allowances $50. debit to Cash $50. debit to Accounts Receivable $50. debit to Sales Allowances $50.

debit to Sales Allowances $50.