AC Chapter 8

The allowance method requires that ______.

Allowance for Doubtful Accounts be netted against Accounts Receivable Bad Debt Expense be recorded in the same period as the related credit sales

Which of the following accounts are temporary accounts closed (zeroed out) at the end of the accounting period into Retained Earnings? (Check all that apply.)

Bad Debt Expense Depreciation Expense Sales Revenue

Which of the following are advantages to extending credit to customers?

Increased demand Increased sales

Which account is used to reduce assets for the amount of estimated bad debts?

The contra-asset account called Allowance for Doubtful Accounts.

True or false: GAAP require end-of-period adjustments for the estimated bad debts in the period of the credit sale even though the specific, non-paying customers have not yet been identified.

True

Ima Broke is a customer that owes the company for credit sales and has declared bankruptcy. As a result, Ima Broke's subsidiary account receivable will be eliminated when ______.

a write off is recorded by debiting Allowance for Doubtful Accounts and crediting Accounts Receivable

Using the allowance method, Bad Debt Expense is recorded _____.

as an estimate in the period of the related credit sales

A company's Bad Debt Expense reports the ______.

estimated amount of this period's credit sales that customers will fail to pay

The accounting principle that governs the recording of bad debt expense in the same period as sales revenue is called the ______.

expense recognition (matching) principle

Sales on account ______.

increase Accounts Receivable on the balance sheet and Sales Revenue on the income statement increase assets and stockholders' equity

Bad Debt Expense is a ______.

temporary account so its balance is closed (zeroed out) at the end of the accounting period

Which of the following is the typical sequence of accounting for sales made on account using the allowance method? Place in order of occurrence from top to bottom.

1. Ac rec. are debited in the period the rev is recognized 2. Bad debt exp is estimated and recorded w an adjusting entry 3. Specific customer balances are written off

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

Which method requires estimating the amount of the Bad Debt Expense and then determining the balance in the Allowance for Doubtful Accounts which will differ from the expense if there is an unadjusted balance?

Percentage of credit sales method