Accounting Chapter 5 Review

The account "Allowance for Uncollectible Accounts" normally has a _____ balance. (Enter only one word.)

credit

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

A customer account that is not expected to be collected is referred to as a bad debt or _____ account. (Enter one word per blank)

uncollectible

Accounts receivable should be classified as a(n) A. liability. B. asset. C. expense. D. revenue.

B. asset.

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

When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n) _____ _____. (Enter only one word per blank.)

sales return

Amend Inc. debited Accounts Receivable and credited Allowance for Doubtful Accounts to reestablish an account previously written off. Amend Inc. should also debit _____ and credit _____. A. Accounts Receivable; Cash B. Cash; Accounts Receivable C. Allowance for Uncollectible Accounts; Cash D. Cash; Allowance for Uncollectible Accounts

B. Cash; Accounts Receivable

Pixie Inc. writes off a specific accounts receivable. If Pixie is using the allowance method, the write off will _____ net income. A. increase B. decrease C. not affect

C. not affect

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. A. True B. False

B. False

Net revenues is calculated as total revenues minus which of the following items? A. Accounts receivable B. Sales discounts C. Sales allowances D. Allowance for uncollectible accounts E. Sales returns

B. Sales discounts C. Sales allowances E. Sales returns

The allowance for uncollectible accounts is a contra account to A. sales allowances. B. accounts receivable. C. bad debt expense. D. revenue.

B. accounts receivable.

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? A. $90,000 B. $107,000 C. $93,000 D. $97,000

C. $93,000

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

B. account receivable.

The estimated expense for accounts that may not be collected is referred to as A. accounts receivable. B. interest expense. C. bad debt expense. D. amortization expense. E. sales discounts.

C. bad debt expense.

Total revenues less discounts, returns, and allowances are referred to as _____ revenues. (Enter only one word.)

net

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? A. Credit to Accounts Receivable B. Debit to Allowance for Uncollectible Accounts C. Debit Bad Debt Expense D. Credit Allowance for Uncollectible Accounts

A. Credit to Accounts Receivable B. Debit to Allowance for Uncollectible Accounts

What are the financial statement effects of recording bad debt expense using the allowance method? A. Decrease assets B. Decrease expenses C. Increase revenues D. Increase expenses E. Increase assets

A. Decrease assets D. Increase expenses

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

B. a percentage reduction from list price.

The allowance method estimates A. future sales. B. uncollectible accounts. C. trade discounts. D. sales discounts.

B. uncollectible accounts.

Raven receives a 3-year note receivable from a customer for goods sold. How should Raven report this note receivable in its financial statements? A. As a contra account to sales B. As a current asset C. As other comprehensive income D. As a noncurrent asset

D. As a noncurrent asset

The allowance method is required by _____. (Enter one word or abbreviation per blank)

GAAP

A customer account that is not expected to be collected is referred to as a(n) _____ debt. (Enter one word per blank)

bad

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

bad debt

The account "Allowance for Uncollectible Accounts" is classified as A. a liability account in the balance sheet. B. an expense in the income statement. C. a contra asset to accounts receivable. D. a contra equity account.

C. a contra asset to accounts receivable.

Which of the following is a discount in the amount to be paid if the customer pays within a specified time period? A. Sales discount B. Trade discount C. Quantity discount D. Purchase discount

A. Sales discount

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 A. allowance. B. discount. C. credit. D. debit.

A. allowance.

Allowance for Uncollectible Accounts has a credit balance because it is a(n) _____ account. A. contra-asset B. asset C. contra-revenue D. expense E. liability

A. contra-asset

A sales allowance _____ the amount owed by the customer for merchandise that is _____ by the customer. A. decreases; retained B. increased; retained C. increases; returned D. decreases; returned.

A. decreases; retained

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

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

The direct write-off method is required for A. income tax purposes. B. IFRS reporting purposes. C. U.S. GAAP reporting purposes.

A. income tax purposes.

Receivables not expected to be collected should A. not be counted in assets of the company. B. initially be included as assets and then be written off when the customer does not pay. C. always be counted in assets of the company.

A. not be counted in assets of the company.

A formal, signed credit agreement between a lender and a borrower is called a(n) _____ by the lender. A. note receivable. B. account receivable. C. account payable. D. note payable.

A. note receivable.

Two important ratios that help in understanding a company's effectiveness in managing receivables are the: A. receivable turnover ratio B. receivables profit margin C. average collection period D. gross receivable ratio

A. receivable turnover ratio C. average collection period

Two entries are required when a previously written off account is collected. These two entries include: A. record the collection on the account receivable B. record bad debt expense C. reinstate the account receivable D. record the adjustment to sales

A. record the collection on the account receivable C. reinstate the account receivable

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? A. $17,000 B. $18,000 C. $20,000 D. $19,000

B. $18,000

The journal entry to record bad debt expense includes: (Select all that apply.) A. debit to allowance for uncollectible accounts B. credit to allowance for uncollectible accounts C. debit to bad debt expense D. credit to bad debt expense

B. credit to allowance for uncollectible accounts C. debit to bad debt expense

When the allowance method is used, the write-off of an uncollectible account: A. decreases net income B. has no effect on net income C. increases net income

B. has no effect on net income

Recording bad debt expense: (Select all that apply.) A. decreases expenses B. increases expenses C. decreases assets D. increases assets E. increases net income F. decreases net income

B. increases expenses C. decreases assets F. decreases net income

Sales to customers in which the customers pay within 30 to 60 days are referred to as (Select all that apply.) A. deferred sales. B. sales on account. C. nonaccrued sales. D. credit sales.

B. sales on account. D. credit sales.

Where is a note receivable reported in the balance sheet? A. In current assets. B. In either current or noncurrent liabilities, as appropriate. C. In either current or noncurrent assets, as appropriate. D. In noncurrent liabilities until paid. E. In noncurrrent assets.

C. In either current or noncurrent assets, as appropriate.

The amount of cash owed to a company by its customers from the sale of goods or services is referred to as A. uncollectible accounts. B. a guarantee. C. accounts receivable. D. accounts payable.

C. accounts receivable.

When a business provides services to a customer, and the customer promises to pay later, this is referred to as A. operating sales. B. cash sales. C. credit sales. D. current sale.

C. credit sales.

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 A. debit Bad Debt Expense. B. debit Accounts Receivable. C. debit Allowance for Uncollectible Accounts. D. credit Sales Returns and Allowances.

C. debit 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): A. decrease in Sales Revenue B. increase in Sales Revenue C. decrease in Accounts Receivable D. increase in Allowance for Doubtful Accounts E. increase in Accounts Receivable

C. decrease in Accounts Receivable

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

C. determines that a specific customer account will not be collectible

The receivables turnover ratio and the average collection period provide information about a company's A. ability to generate sales B. amount of net credit sales C. effectiveness in managing receivables

C. effectiveness in managing receivables

Under the allowance method, companies estimate _____ uncollectible amounts and report those estimates in the _____ year. A. future; future B. current; current C. future; current D. current; future

C. future; current

A formal credit arrangement between a creditor and debtor is called a(n) A. account receivable. B. trade receivable. C. note receivable. D. interest receivable.

C. note receivable.

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

C. they will be converted to cash within 1 year.

When the direct write-off method is used, an entry for bad debt expense is required A. only when bad debts are recorded on the tax return. B. when each sale is made. C. when the account receivable is determined to be uncollectible. D. at the end of the year.

C. when the account receivable is determined to be uncollectible.

To record an estimate for future bad debts at the end of the period, an adjustment would be made with a credit to A. bad debt expense. B. accounts receivable. C. sales returns and allowances. D. allowance for uncollectible accounts.

D. allowance for uncollectible accounts.

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

D. allowance method

Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to A. result in the lowest net income. B. recognize bad debts earlier. C. result in the highest net income. D. be more accurate.

D. be more accurate.

When a customer returns a product for a refund, in which account is the entry recorded? A. purchase discount B. sales discount C. purchase return D. sales return

D. sales return