accounting chapter 5

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

The allowance method is required by

GAAP

is the legal right to receive cash from a credit sale and represents an asset of the company.

an account receivable

notes receivable is recognized as a(n)

asset

Sales to customers in which the customers pay within 30 to 60 days are referred to as

credit sales. sales on account.

Notes receivable normally has what kind of balance?

debit

Gwendolyn uses the allowance method to account for uncollectible receivables. Gwendolyn should record _____ bad debt expense ______.

estimated; at the end of the year

The direct write-off method is required for

income tax purposes.

The financial statement effects of recording an allowance for estimated sales returns are that:

net income decreases assets decrease equity decreases

Receivables not expected to be collected should

not be counted in assets of the company

When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n)

sales return

The allowance method estimates

uncollectible accounts.

A formal credit arrangement between a creditor and debtor is called a(n)

note receivable.

The percentage-of-receivables approach to measuring bad debt expense is referred to as

a balance sheet method

The normal balance of notes receivable is:

a debit

The Accounts Receivable account is reduced when the seller:

determines that a specific customer account will not be collectible

A formal, signed credit agreement between a lender and a borrower is called a(n) _____ by the lender.

note receivable.

Net revenues is calculated as total revenues minus

sales allowances sales returns sales discounts

A cash discount representing a reduction in the amount to be paid by a credit customer if the customer pays within a specified period of time is also referred to as a(n)

sales discount

The direct write-off method is used when

uncollectible accounts are not anticipated or are immaterial.

Sales Returns and Sales Allowances are ______________ accounts and require a _________ entry to increase the account.

contra-revenue debit

Joyce Corp. uses the percentage-of-receivables method to account for bad debt expense. 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?

Credit to Accounts Receivable Debit to Allowance for Uncollectible Accounts

Adrian Corp. sells goods on account for $100,000 on May 1. On May 15, the customer returns $40,000 of the merchandise. The customer has not yet paid for any of the goods. What will Adrian record on May 15?

Debit to Sales Returns. Credit to Accounts Receivable.

Where is a note receivable reported in the balance sheet?

In either current or noncurrent assets, as appropriate.

The percentage-of-receivables method of estimating bad debt applies ____ to _____.

a single percentage; accounts receivable

The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the

aging method

To record an estimate for future bad debts at the end of the period, an adjustment would be made with a credit to

allowance for uncollectible accounts.

A company that expects that some of its customers will not pay the agreed upon sales price must utilize the

allowance method

A trade discount is a reduction from the list price, which is used to:

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

Allowance for Uncollectible Accounts has a credit balance because it is a(n)

contra-asset account (to account receivables)(what about notes receivable?)

Planters Corp. wrote off a customer's uncollectible account in April. In the following month, Planters collected from the customer in full. The entry to reinstate the account would require a

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

A calendar-year-end company that accepts a 3-month interest-bearing note on December 1 must accrue __________ revenue on December 31.

interest

Pixie Inc. writes off a specific accounts receivable. If Pixie is using the allowance method, the write off will _____ net income.

not affect

A partial adjustment to the amount owed by the customer for goods that were not returned, but did not fully meet the customer's expectations is referred to as a

sales allowance

For accounts receivable, the longer an account is outstanding,

the more likely it will prove uncollectible.

Accounts receivable are typically classified as current assets because

they will be converted to cash within 1 year.

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 list price in Boyton's catalog indicates that Product A sells for $3,000, with a trade discount of 5%. Boyton sells the goods to a customer who qualifies for the trade discount. At what amount should Boyton record the sale and related account receivable?

$2,850

A trade discount is recognized

by reducing the revenue amount recorded.

The journal entry to record bad debt expense includes:

debit to bad debt expense credit to 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

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.

Shannon Corp. uses the aging method to account for bad debt expense. 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.

When a company has earned interest in the current period but has not yet recorded the interest, what type of adjustment is the company required to make?

Make an adjusting entry at the end of the current period to accrue the interest earned.