Accounting Review Chapter 24 & 25

Large businesses with many charge customers usually use the direct write off method of accounting for uncollectible accounts

False

The Allowance for Uncollectible Accounts is reported on the balance sheet as an addition to Accounts Receivable.

False

The market value of the merchandise on hand is always higher than the original cost.

False

The specific identification method is used by most businesses.

False

The weighted average cost method is the most accurate of the inventory costing methods.

False

Periodic Inventory System

Inventory records are updated only after a physical count of merchandise on hand is made.

Lower of Cost or Market Rule

Requires that the cost of the ending inventory that appears on the financial statements is the lower of its cost.

Uncollectible Account

a bad debit, is an account receivable that the business cannot collect.

Allowance Method

matches the estimated uncollectible accounts

Aging of accounts receivable method

Classifies the accounts receivable according to the number of days each account is past due.

Point of Scale Terminals POS that are online.

Computers update a perpetual inventory system through electronic cash registers.

The two general ledger accounts affected by the direct write-off method of accounting for uncollectible accounts are Uncollectible Accounts Expense and Accounts Payable.

False

When a business sells goods or services on account, it knows which charge customer's accounts will be uncollectible.

False

If a business uses a perpetual inventory system control, a periodic inventory is never needed.

False.

Another term for uncollectible accounts is bad debits

True

The FIFO method assumes that the items still in inventory were the last ones purchased.

True

When a business uses the allowance method, an adjusting entry must be made.

True.

GAAP Consistency Principle

When a business applies the same accounting methods in the same way from one period to the next.

Weighted Average Cost Method

assigns the average cost to each unit in inventory. You add the number of units on hand at beginning of the period and the number of units purchased. Then adding the cost of the units on hand at the beginning of the period, and the cost of the units purchased, and dividing the total cost by the total number of units.

First In First Out Method

assumes that the first items purchased (first in) are the first items sold (first out). It assumes that the items purchased most recently are the ones on hand at the end of the period.

Last In, First Out Method

assumes that the last items purchased (last in) are the first items sold (first out). It assumes that the items purchased first are still on hand at the end of the period.

Book Value of Accounts Receivable

is the amount the business can reasonably expect to collect from its accounts receivable.

Market Value

is the current price that is charged for a similar item of merchandise in the market.

GAAP conservatism principle

states that it is best to present amounts that are least likely to result in an overstatement of income or assets. (safe route)

Percentage of Net Sales Method

the business assumes that a certain percentage of each year's net sales will be uncollectible.

Specific Identification Costing Method

the exact cost of each item is determined and assigned to that item.

Direct Write Off Method

when the business determines that the amount owed is not going to be paid, the uncollectible account is removed from the accounting records.

Perpetual Inventory System

which keeps a constant, up-to-date record of merchandise on hand at any point in time.

A perpetual inventory system can be established without using a computer.

True

An appliance store is one example of a company that might use the specific identification costing method.

True

Businesses that sell on credit usually expect to sell more than if they accepted only cash.

True

Computers have made it much easier for businesses of all sizes to use a perpetual inventory system.

True

The Allowance for Uncollectible Accounts account is classified as a contra asset account.

True

The LIFO method assumes that the first items purchased are the ones still remaining in inventory at the end of the period.

True

The costing method used to determine the value of the ending inventory will affect the gross profit on sales.

True

The normal balance of Allowance for Uncollectible Accounts is a credit.

True

Under the allowance method, Allowance for Uncollectible Accounts is debited when a charge customer's account is written off as a bad debit.

True

When an account is written off as uncollectible, an explanation should be written on the account.

True

When the direct write-off method of accounting is used, Accounts Receivable and the customer's account in the subsidiary ledger are credited when it is determined that the charge customer is not going to pay.

True