CHAPTER 5

What is the formula for the receivables turnover rate?

Net credit sales divided by average accounts receivable (net)

the allowance for uncollectible accounts is a contra account to?

accounts receivable

accounts receivable = 20000, recorded a bad debit expense of 1000, ending balance for uncollectible assets of 2000 what is the net realizable value of accounts receivable?

18000

what is the average collection period? receivable turnover 6, inventory turnover 5, asset turnover 3, net credit sales 500000,

365 / receivable turnover rate 365/6 =60.8 days

the formula for average collection period is

365 divided by the receivable turnover ratio

When a business sells goods to a customer, and the customer promises to pay later, this is referred to as a "?"

Credit sale

a trade discount is

a percentage reduction from list price

to record bad debits at the end of the period, an adjustment would be made by a credit to?

allowance for uncollectable accounts

to reinstate an account which had been written off would require a credit to?

allowance for uncollectible accounts

what is bad debit classified as?

an operating expense

a customer account that is not expected to be collected is referred to as a ?

bad debit

the expense associated with amounts of accounts receivable that may not be collected during the year is called

bad debit expense

to record bad debit at the end of a period, an adjustment would be made by a debit to?

bad debit expense

the two conditions that must exist for a sale and the related receivable to be recognized are "?" "?"

collection from the customer is reasonably assured, the earnings process is virtually complete

when a business sells good to a customer and the customer promises to pay later it is referred to as a?

credit sale

sales to customers in which they pay within 30 to 60 days are referred to as

credit sales, sales on account

what will be recorded during a sales return ?

credit to accounts receivable, debit to sales returns

accounts receivable should be classified as a

current asset

the sales returns and allowance accounts are a contra revenue account which require a "?" entry to increase the account

debit

offering an interest bearing note would require what journal entries on the day of its signing

debit notes receivable, credit service revenue (don't worry about interest on the note just yet)

If a customer pays in time to receive a sales discount what would you journal entries would you record?

debit sales discount, debit cash (less the discount) credit accounts receivable

to write off an account that has been deemed uncollectable, which entries should be recorded in the journal?

debit to allowance for uncollectible accounts, credit to accounts receivable,

a trade discount is a reduction from the list price, which is used to "?" "?" "?"

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

formula for finding the amount of adjustment for uncollectible accounts

ending balance of accounts for uncollectible assets + amount already written off - beginning balance

what affects does the allowance method have?

increases expenses, decreases assets

if sales returns are treated as expenses what are the effects on financial statements

expenses are overstated, revenues are overstated

formula for calculating interest on a note is

face amount x annual rate x fraction of the annual period

note receivable

formal credit arrangement between borrower and lender

do companies seek a high or low receivable turnover ratio?

high receivable turnover ratio

what classifies a long term asset?

if the company expects to receive the cash in over one year

what classifies a current asset?

if the company expects to receive the cash within one year

accounts receivable are normally classified

in the balance sheet as current assets

where is bad debit reported?

income statement

account receivable

informal credit agreement with trade customers

companies extend credit to customers and sell good on account because?

it increases sales

what information does the receivable turnover ratio provide?

it provides and indication o a company's efficiency in collecting receivables, it shows the number of times during a period that the average accounts receivable balance is collected

the direct write off method is normally not permitted for u.s gaap reporting because it violates which principal?

matching principal

The amount that is actually expected to be collected on accounts receivable is referred to as ?

net realizable value

the balance sheet approach to measuring bad debit expenses focuses on?

net realizable value of accounts receivable

total revenues less discounts, return, and allowances are referred to as ?

net revenues

find the receivables turnover ratio, net sales =200,000. total assets for years 1 and 2 = 800,000 and 1,200,0000. accounts receivable at the end of year 1 and 2 = 40,000 and 60,000

net sales / average accounts receivable = 4

income tax is a "?" receivable

non trade

what is the balance sheet approach to measuring bad debit expense also known as?

percentage of receivables method

A claim to cash in the future is a

receivable

what does the direct write off method do?

reduces accounts receivable, and records bad debit expense at the the the account receivable proves to be uncollectable

which two entries are required when a previously written off account is paid, these are?

reinstate the account receivable, record the collection on the account receivable

a cash discount representing a reduction in the amount to be paid by a credit customer if the customers pay within a specific period of time is also called a

sales discount

when a customer returns a product for a refund, in what account is the entry recorded?

sales return

when merchandise is returned for a refund or for credit to be applies to other purchases, the situation is called a

sales return

net revenues are calculated by subtracting which items?

sales returns, sales allowances, sales discounts

ABC company provides 20,000 of services on account the account that should be credited is?

service revenue

to increase revenue which account should be credited?

service revenue

Items classified as receivables

tax refund claims, amounts owed by customers, amounts loaned and expected to be repaid

the approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as which method?

the aging of accounts receivable method

net realizable value of accounts receivable (net accounts receivable) =

total accounts receivable less the allowance for uncollectible accounts

why is the direct write off method bad / not acceptable for financial accounting

violates matching principal, as the credit sale is made during a different period bad debit is not matched with revenues (credit sales), also accounts receivable will be overstated in the prior period

what is a sales return?

when a customer return a product for a full refund

when is the direct write off method used?

when uncollectible accounts are not anticipated or are immaterial

what is a sales allowance

where a customer keeps the product but obtains a partial refund

what are the disadvantages to extending credit to customers?

accounts that are un-collectible, delays in collecting accounts

what does the allowance method account for?

uncollectible accounts