Financial Accounting Ch. 8

Réussis tes devoirs et examens dès maintenant avec Quizwiz!

Which of the following statements regarding the allowance method of accounting for uncollectible receivables is incorrect​? A. The business does not wait to see which customers will not pay when estimating the allowance for bad debts. B. Bad debt expense is not estimated. C. The allowance method is based on the matching principle. D. The Allowance for Bad Debts is used to hold the pool of​ "unknown" uncollectible accounts.

B. Bad debt expense is not estimated.

Under the Direct Write−Off ​Method, the expense account used when Accounts Receivable is removed from the books is​ _____________.

Bad Debt Expense

Accounts Receivable is reported on the balance sheet as​ ______________.

a current asset

A benefit to a business selling on account is​ ______________.

a potential increase in revenues

The balance sheet approach of estimating bad debts is the​ ________.

aging-of-receivables and percent-of receivables methods.

Most companies must use a method of accounting for bad debts that does a better job of matching revenues and expenses. This would be the​ _________.

allowance method

The​ _____________ is the method of accounting for bad debts required by GAAP.

allowance method

A receivable is​ a(n):

asset

One possible cost of extending credit is called​ ______________.

bad debt expense

Selling on account can result in​ a(n) ________ when customers do not pay.

cost

The Allowance for Bad Debts account on the balance sheet is​ ___________.

subtracted from Accounts Receivable

The two methods of accounting for uncollectible accounts receivable are​ ________.

the allowance method and the direct write−off method

When a company uses the allowance method to measure bad​ debts, ________.

the amount of bad debts expense is estimated at the end of the accounting period

Once an accounts receivable is written off​ _________.

the customer's accounts receivable is removed from the books

Patriots uses the percent−of−receivables method to determine bad debts expense. Given the following​ information, determine the amount of bad debts expense. Balance in Accounts Receivable $47,000 Balance in Allowance for Bad Debts​ (credit) $100 Net Credit Sales $200,000 Estimated percent of uncollectible receivables 4​%

$1,780

After the December​ 31, 2025 adjusting journal entries have been​ posted, Sinclair Enterprises has the following account balances​ (all accounts have normal​ balances): Accounts Receivable ​$151,000 Allowance for Bad Debts $4,800 Bad Debts Expense $9,000 What is the net realizable value of Accounts Receivable as of December​ 31, 2025?

$146,200

After the December​ 31, 2025 adjusting journal entries have been​ posted, Sinclair Enterprises has the following account balances​ (all accounts have normal​ balances): Accounts Receivable $154,000 Allowance for Bad Debts $4,800 Bad Debts Expense $8,300 What is the net realizable value of Accounts Receivable as of December​ 31, 2025?

$149,200

A company reports net accounts receivable of $259,000 on its December​ 31, 2019 balance sheet. The Allowance for Bad Debts account has a credit balance of $30,000. What is the balance of Accounts​ Receivable?

$289,000

The following information is from the records of Classic Car​ Shop: Accounts​ receivable, December​ 31, 2018 ​$30,000 (debit Net credit sales for 2018 ​54,000 Accounts written off as uncollectible during 2018 ​4,900 Cash sales during 2018 ​48,000 The company uses the direct write−off method for bad debts. What is the amount of bad debts​ expense?

$4,900

Patriots uses the percent−of−receivables method to determine bad debts expense. Given the following​ information, determine the amount of bad debts expense. Balance in Accounts Receivable $43,000 Balance in Allowance for Bad Debts​ (credit) ​$200 Net Credit Sales ​$290,000 Estimated percent of uncollectible receivables ​2%

$660

On March​ 10, Basics, Inc. sold​ $25,000 of merchandise to​ Jacobs, on account. Basics could not collect cash from Jacobs and wrote off the account. What is the journal entry to record the write−​off, assuming Basic uses the allowance​ method?

(DR) Accounts Receivable—Jacobs 25,000 (CR) Bad Debts Expense ​25,000

On December​ 6, King, Inc. sold​ $15,000 of merchandise to​ James, on account. King could not collect cash from James and wrote off the account. What is the journal entry to record the write−​off, assuming King uses the allowance​ method?

(DR) Allowance for Bad Debts ​15,000 (CR) Accounts Receivable—James 15,000

Which of the following is an example of exercising internal control over​ receivables? A. separating cash collection and credit approval duties B. extending credit to all customers who apply for credit C. combining the duties of the credit and accounting departments D. allowing credit department employees to collect cash from customers

A. separating cash collection and credit approval duties

ABC Company uses the allowance method and estimates bad debts using the percent−of−sales method. The​ company's management estimates that 3​% of net credit sales will be uncollectible for the year 2025. Net credit sales for the year amounted to $240,000. What is the journal entry to record the estimated bad debts​ expense?

Debit Bad Debts Expense for $7,200​; Credit Allowance for Bad Debts for $7,200

ABC Company uses the allowance method and estimates bad debts using the percent-of-aales method. The​ company's management estimates that​ 3% of net credit sales will be uncollectible for the year 2025. Net credit sales for the year amounted to​ $270,000. What is the journal entry to record the estimated bad debts​ expense?

Debit Bad Debts Expense for​ $8,100; Credit Allowance for Bad Debts for​ $8,100

A business maintains subsidiary accounts for each of its customers. On May​ 15, the business provides services on​ account: $1,800 to customer J. Anthony​ ; $4,800 to customer A.​ Martin; and $1,600 to customer S. Lee. Which journal entry is needed to record these​ transactions?

May 15 (DR) Accounts Receivable − J. Anthony 1,800 Accounts Receivable − A. Martin 4,800 Accounts Receivable − S. Lee 1,600 (CR) Service Revenue 8,200

A business maintains subsidiary accounts for each of its customers. On May​ 2, the business provides services on account of​ $2,000 to customer Mike Jones. Which journal entry is needed to record the collecting of​ $2,000 in cash from Jones on May​ 15?

May 15 (DR) Cash ​2,000 (CR) Accounts Receivable − M. Jones ​2,000

Accounts Receivable are usually collected​ _____________.

in a short period of​ time, such as 30 or 60 days.

The allowance method of accounting for uncollectible receivables​ _________.

is used to measure bad debts

For a company with significant uncollectible​ receivables, the direct write−off method is unsuitable because​ ________ for the current year.

it may overstate net income

The income statement approach of estimating bad debts is the​ ________.

percent−of−sales method.

Accounts receivable that are uncollectible must be​ _________.

removed from the books and written off

Jayson Enterprises uses the allowance method to account for uncollectible receivables. When an uncollectible account is written​ off, ________.

the write off has no effect on net income

To estimate the amount of bad debts expense when using the allowance​ method, companies use​ ________.

their past experience as well as considering the economy and the industry they operate in.


Ensembles d'études connexes

Chapter 40: Respiratory Dysfunction peds q

View Set

IB Business Management: 1.1 Test

View Set

AICE Sociology Media Study Guide

View Set

ATI PME Tutorial: Medication Administration Test

View Set

Vocabulary for the College Bound Level 12: Lesson 2

View Set