Ch.6 Learnsmart

Which of the following is a current asset? (Check all that apply.)

Accounts receivable Notes receivable due within 90 days Trade receivable

Which of the following are contra-asset accounts? (Check all that apply.)

Accumulated depreciation Allowance for doubtful accounts

Although there are some clear disadvantages associated with extending credit to customers, such as bad debt costs, most managers believe a particular advantage outweighs the costs. To which primary advantage do they refer?

Additional sales revenue

Companies may use which of the following to motivate sales and collections? (Select all that apply.)

Allow customers to purchase on credit Provide discounts for early collection

Management estimates that 1% of the $100,000 of credit sales will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted credit balance. The adjusting entry to record estimated bad debts includes a ______. (Check all that apply.)

Debit to Bad Debt Expense of $1000 and Credit to Allowance for Doubtful Accounts of $1000

Which method for accounting for doubtful accounts is easier to apply but less accurate and thus tends to be used on a monthly basis, instead of on an annual basis?

Percentage of total credit sales method

Ace Electronics recorded a debit to Sales Returns and Allowances and a credit to Accounts Receivable, along with a debit to Inventory and a credit to Cost of Goods Sold. What business event must have taken place?

The customer received a damaged product and returned it.

What information is provided by the receivables turnover ratio? (Check all that apply.)

The number of times the average receivables balance is collected during the period That a higher ratio means faster (better) turnover

The estimated amount of credit sales that customers will likely fail to pay is recorded as bad debt expense in which period?

The same period as credit sales

The line item Trade accounts receivable, net of allowances will be found on the ______.

balance sheet

Accounts Receivable is classified on the ______.

balance sheet as a current asset

When using the allowance method, the adjusting entry to record estimated bad debt expense includes a ______. (Check all that apply.)

credit to Allowance for Doubtful Accounts debit to Bad Debt Expense

The entry to record the collection of $9,600 from a customer whose account had previously been written off includes a ______.

credit to Allowance for doubtful accounts of $9,600

A contra-asset account, such as Allowance for Doubtful Accounts or Accumulated Depreciation, has a normal balance of a ______ and causes total assets to ______.

credit; decrease

A customer that was written off now pays. The journal entry recorded to reverse this previously written-off amount is recorded as a ______.

debit Accounts receivable and credit Allowance for doubtful accounts

Since accounting numbers, such as the allowance for doubtful accounts balance, are based on , financial statements are susceptible to management manipulation. (Enter one word per blank.)

estimates

Given the unadjusted Allowance for Doubtful Accounts has a $50 debit balance, the amount of receivables written off was ______ than the amount estimated in the prior period. This will cause Bad Debt Expense to be ______ in the current period than had the unadjusted balance been a credit balance.

greater; greater

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

has no effect on net income

Rank the the 5 step process of recognizing revenue for bundled goods and services listing the 1st step at the top.

https://gyazo.com/f2750cfffad07a36b83b848e46d99d34

Identify two benefits to the seller of offering sales discounts to its customers.

increases the likelihood the seller will receive the cash before the customer runs out of funds prompt receipt of cash

If the direction of change in Accounts Receivable is a decrease from the prior period, the amount of that change is added to net income in the operating Blank 1 Blank 1 operating, Correct Unavailable activities section of the statement of cash flows.

operating

When a company sells phones bundled with a one-year service contract, then the portion of revenue allocated to the one-year service is recognized ______.

over time as the service is provided

The of credit sales is the method that estimates bad debt expense using credit sales and the of accounts receivable method estimates the allowance for doubtful accounts based on the time each account receivable has been outstanding.

percentage

On January 1, goods were picked up by a FedUp Delivery, Inc. The goods arrived at the customer's place of business on January 12. If the seller recorded the sale on January 1, then the terms must have been FOB ______.

shipping point

An individual customer's accounts receivable is recorded in the customer's ______ account and then summarized with all other customers' accounts on the balance sheet as Accounts receivable.

subsidiary

The accounts receivable balance on the balance sheet represents the total of the individual customer accounts. Each customer's account is referred to as a(n) ______ account.

subsidiary

An analyst sees the line item Trade accounts receivable, net of allowances of $2,040,000, with a balance of $19,500,000. Which of the following statements is correct. (Select all that apply.)

$2,040,000 is the amount estimated to be uncollectible $21,540,000 is the gross receivables $19,500,000 is the expected amount to be collected from customers

Net sales revenue is $720,000. Beginning and ending net trade accounts receivable are $62,000 and $58,000, respectively. Calculate the receivables turnover ratio.

12.0 times

The average collection period (or average days sales in receivables) is computed as ______.

365 divided by the receivables turnover ratio

ABC's Accounts receivable for 2018 and 2019 are $880 and $820 respectively, and its 2019 sales are $7,225. Compute the number of days it takes ABC to collect its accounts receivable during 2019.

43 days

Select all of the following that are properly defined.

Accounts Receivable (Net) is the net realizable value. Accounts Receivable (Gross) includes both collectible and uncollectible receivables. Allowance for Doubtful Accounts is the amount of receivables estimated to be uncollectible. Accounts Receivable (Net) reports the amount of receivables expected to be collected.

Delectable, Inc.'s unadjusted trial balance includes Accounts receivable of $10,000; Allowance for doubtful accounts as a $50 credit balance; and Credit sales of $100,000. Based on an aging of its receivable, management estimates that $1,000 of receivables will be uncollectible. Delectable's financial statements will show ______. (Check all that apply.)

Allowance for Doubtful Accounts of $1,000 Bad Debt Expense of $950

Delectable, Inc.'s unadjusted trial balance includes Accounts Receivable of $10,000; Allowance for Doubtful Accounts of $50 credit balance; and Sales Revenue of $100,000 (all on credit). Management estimates that 2% of credit sales will be uncollectible. Delectable's financial statements will show:

Allowance for Doubtful Accounts of $2050 credit balance ($50 credit unadjusted balance + $2000 credit for the amount expensed) and Bad Debt Expense of $2000

ABC, Inc.'s unadjusted trial balance included Accounts receivable of $80,000; Allowance for doubtful accounts as a $750 credit balance; and Credit sales of $400,000. ABC uses the aging-of-receivables method and estimates that $8,000 of its receivables will be uncollectible. After the adjusting entry is made, ABC's financial statements will report: (Check all that apply.)

Bad debt expense of $7,250 on the income statement. Allowance for doubtful accounts of $8,000 on the balance sheet.

True or false: Net sales is the same as net income and is reported on the income statement

False Rationale: Net sales is the first line of the income statement above expenses. Net income is net of all expenses.

Bad debt expense is included in the category ______ net income and stockholders' equity.

General and Administrative Expenses on the income statement and decreases

The receivables turnover ratio is computed as ______.

Net Sales divided by Average Net Trade Accounts ReceivableNet Sales divided by Average Net Trade Accounts ReceivableNet Sales divided by Average Net Trade Accounts Receivable

Accepting only cash and canceling a credit card program that previously allowed customers to purchase merchandise on credit may cause ______. (Check all that apply.)

Sales to decrease and Bad Debt Expense to decrease

In which situations does a company issue a note receivable? (Check all that apply.)

The company lends money to employees or businesses. The company makes an exception for a financially troubled customer and extends the payment period and charges interest.

During the year, ABC Corp. realizes that a particular customer will never pay. What action should ABC take?

Write off the uncollectible account and its corresponding allowance from the accounting records.

To help minimize bad debt expense and provide feedback, a good internal control system will require ______. (Check all that apply.)

a periodic aging of accounts receivable approval of customers' credit history

To help minimize bad debt expense and provide feedback, a good internal control system will require ______. (Check all that apply.)

a periodic aging of accounts receivable approval of customers' credit history

Removing an uncollectible account and its corresponding allowance from the accounting records is called ______.

a write-off

Requiring approval of customers' credit history, reviewing the age of past due accounts and rewarding speedy collections are examples of controls over ______.

accounts receivable

The challenge businesses face when estimating the allowance for doubtful accounts is that ______.

at the time of the sale, it is not known which particular customer will be a "bad" customer

Expense is associated with the estimated uncollectible accounts receivable. (Enter one word per blank.)

bad debt

The expense associated with the estimate of the amount of accounts receivable that may not be collected during the year is referred to as ______.

bad debt expensebad debt expensebad debt expensebad debt expense

The Allowance for Doubtful Accounts, a contra-asset account, is ______ when specific uncollectible accounts are written-off.

debited

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

decreases net accounts receivable

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

decreases net accounts receivable

Sales discounts should appear in the financial statements as a(n) ______.

deduction from sales

A high receivables turnover ratio is a sign of a company's ______.

effectiveness in granting and collecting crediteffectiveness in granting and collecting credit

Net sales is reported on the ______.

first line of the income statement

Given the unadjusted Allowance for Doubtful Accounts has a $50 credit balance, the amount of receivables written off was ______ than the amount estimated in the prior period. This will cause Bad Debt Expense to be ______ in the current period than had the unadjusted balance been a debit or $0 unadjusted balance.ance.

less; less

Nontrade receivables differ from trade receivables in that nontrade receivables ______.

result from lending money to employees

Offering customers ______ increases the likelihood the seller will receive the cash before the customer runs out of funds and encourages prompt payment.

sales discounts

Accounts receivable has a $2,300 balance, and the Allowance for doubtful accounts has a $200 credit balance. An $80 account receivable is written-off. Net receivables (net realizable value) after the write-off equals ______.

$2,100

XYZ Company sold merchandise for $5,000, with payment terms of 2/10,n/30. If the customer pays within the discount period and takes the discount, XYZ will receive ______.

$4,900

Cellar's Inc. sold $800,000 of merchandise with sales terms of 2/10, n/30 and the customers paid within 10 days. The net sales equals ______.

$784,000

Which method for accounting for doubtful accounts is more accurate?

Aging of accounts receivable

What conclusion are managers likely to draw from a constant increase to sales returns and allowances?

Customers are unhappy with the quality of the merchandise.

Using the allowance method, which is the correct adjusting journal entry to record bad debt expense?

Debit Bad Debt Expense and credit Allowance for Doubtful Accounts

What are the financial statement effects of recording bad debt expense using the allowance method?

Increase expenses Decrease assets

Which of the following is a noncurrent asset? (Check all that apply.)

Nontrade receivable due in 3 years 2-year notes receivable

Match the following methods for estimating bad debts with their descriptions.

Percentage of credit sales method Percentage of credit sales method answer drop zone Requires directly computing the desired amount of bad debt expense on the income statement correct toggle button unavailable Requires directly computing the desired amount of bad debt expense on the income statement Percentage of credit sales method Percentage of credit sales method answer drop zone Requires directly computing the desired amount of bad debt expense on the income statement correct toggle button unavailable Requires directly computing the desired amount of bad debt expense on the income statement

Which of the following are typically netted against sales to arrive at net sales? (Check all that apply.)

Sales discounts Sales returns and allowances Credit card discounts

Match each description with the financial statement on which the information is found.

https://gyazo.com/60a037bcc031d915a26b6908598f0880

Match the two steps in accounting for bad debts with the appropriate entry.

https://gyazo.com/8bc8414141dc056ed9861ce9bfb5a342

Short-term highly liquid investments with a maturity of three Blank 1 Blank 1 three, Correct Unavailable months or less that can be readily converted to cash with little risk of loss are classified as cash equivalents. (Enter one word per blank.)

three

Accounting for bad debts using the allowance method requires which 2 steps?

1) Recording an adjusting entry for the estimated bad debts and 2) writing off the actual bad debts

Brewed Awakenings, Inc., sold $100,000 of coffee to Java the Hut with sales terms of 1/7, n/30. Given Java paid within the discount period, the amount of the sales discount equals $

1,000

Accounts receivable, net on the balance sheet refers to ______.

Accounts Receivable minus the Allowance for Uncollectible Accounts

Accounts Receivable represent ______.

amounts owed to a business by its customers