Chapter 6 Theory Quiz
If accounts receivable are material, GAAP requires that the expense resulting from the failure of credit customers to pay their bills should
Be estimated and recorded in the period in which sales are made so that expenses are with revenues
If a company uses the allowance method to account for bad debts, when will the company's stockholders equity decrease?
At the end of the accounting period when an adjusting entry for bad debts is recorded
Bad Debts Expense is a contra-account that is used to reduce accounts receivable to its net realizable value
False
If a company is basing their bad debt expense on an aging schedule of accounts receivable they are using the income statement method to estimate bad debt expense
False
When recording an adjusting entry for bad debt, a debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts will affect the balance sheet, but not the income statement
False
If a company uses the direct write off method of accounting for bad debts
It will record bad debt expense only when an account is determined to be uncollectable
Accounts receivable are shown on the balance sheet at their net realizable value
True
An entry to write-off an uncollectible account does not change the net realizable value of accounts receivable
True
Recording the collection of a previously written off account will not affect the income statement
True
Sales Returns and Allowances should not be included as a selling expense
True
The balance sheet approach of estimating uncollectible accounts takes into account the existing balance in the Allowance for Doubtful Accounts account
True
The direct write off method of accounting for bad debt is allowed under GAAP if the company's accounts receivable are immaterial
True
The direct write off method of accounting for bad debts is allowed under GAAP, but only if the company's account receivables are immaterial
True
The normal balance of the Allowance for Doubtful Accounts account is a credit
True