Accounting Chapter 5
Tudor Corp. has an ending balance in the accounts receivable account of $20,000. Tudor recorded bad debt expense of $1,000. Tudor has an ending balance in the allowance for uncollectible accounts of $2,000. What is the net accounts receivable balance?
$18,000
The income statement approach for estimating bad debts focuses on
current year's credit sales.
Shannon determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account will include
debit Allowance for Uncollectible Accounts.
Prime Corp. has an ending balance in the accounts receivable account of $100,000. Prime recorded bad debt expense of $3,000. Prime has an ending balance in the allowance for uncollectible accounts of $7,000. What is the net accounts receivable balance?
$93,000
net revenues
A company's total revenues less any discounts, returns, and allowances. p. 229
invoice
A source document that identifies the date of sale, the customer, the specific items sold, the dollar amount of the sale, and the payment terms. p. 228
Contra revenue account
An account with a balance that is opposite, or "contra," to that of its related revenue account
When an account previously written off is collected in full, which is required to ensure the accounting for the complete payment history of the customer?
An entry to reinstate the account receivable and an entry to record payment.
Raven receives a 3-year note receivable from a customer for goods sold. How should Raven report this note receivable in its financial statements?
As a noncurrent asset
Amend Inc. debited Accounts Receivable and credited Allowance for Uncollectible Accounts to reestablish an account previously written off. Amend Inc. should also debit Blank______ and credit Blank______.
Cash; Accounts Receivable
Joyce determines that a customer account of $20,000 should be written off as uncollectible. The write off of the account will include which of the following entries?
Debit to Allowance for Uncollectible Accounts Credit to Accounts Receivable
Where is a note receivable reported in the balance sheet?
In either current or noncurrent assets, as appropriate.
trade discount
Reduction in the listed price of a good or service.
sales allowance
Seller reduces the customer's balance owed or provides at least a partial refund because of some deficiency in the company's good or service. p. 230
accounts receivable
The amounts owed to the company by its customers from the sale of goods or services on account. p. 228
credit sales
Transfer of goods or services to a customer today while bearing the risk of collecting payment from that customer in the future. Also known as sales on account or services on account. p. 228
The account "Allowance for Uncollectible Accounts" is classified as
a contra asset to accounts receivable.
The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the ___ method of accounts receivable
aging
A company that expects that some of its customers will not pay the agreed upon sales price must utilize the
allowance method
Two important ratios that help in understanding a company's effectiveness in managing receivables are the:
average collection period receivables turnover ratio
The estimated expense for accounts that may not be collected is referred to as
bad debt expense
Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to
be more accurate.
"Allowance for Uncollectable Accounts"
contra asset account representing the amount of accounts receivable that we do not expect to collect a way to reduce accounts receivable directly report it in the asset section of the balance sheet represents a reduction in the balance of accounts receivable
The journal entry to record bad debt expense includes: (Select all that apply.)
debit to bad debt expense credit to allowance for uncollectible accounts
Ophelia Inc. just learned that Patton Inc., one of its customers with an outstanding accounts receivable balance, filed for bankruptcy. Assuming that the company utilizes the allowance method, Ophelia should record a(n):
decrease in Accounts Receivable
The Accounts Receivable account is reduced when the seller:
determines that a specific customer account will not be collectible
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
The receivables turnover ratio and the average collection period provide information about a company's
effectiveness in managing receivables
Under the allowance method, companies estimate Blank______ uncollectible amounts and report those estimates in the Blank______ year.
future; current
When the allowance method is used, the write-off of an uncollectible account:
has no effect on net income
Using a percentage of each period's net credit sales to estimate bad debt expense is a(n) ___ ____ approach to measuring bad debts.
income statement
(Face value x annual interest rate x fraction of the annual period) is the formula for
interest on a note.
Pixie Inc. writes off a specific accounts receivable. If Pixie is using the allowance method, the write off will Blank______ net income.
not affect
Receivables not expected to be collected should
not be counted in assets of the company.
Two entries are required when a previously written off account is collected. These two entries include:
record the collection on the account receivable reinstate the account receivable
Sales to customers in which the customers pay within 30 to 60 days are referred to as (Select all that apply.)
sales on account. credit sales.
When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n)
sales return
Accounts receivable are typically classified as current assets because
they will be converted to cash within 1 year.
The direct write-off method is used when
uncollectible accounts are not anticipated or are immaterial.