accounting chapter 8

Accounts receivable are valued and reported on the balance sheet

at cash realizable value.

The term "receivables" refers to

amounts due from individuals or companies.

Bad Debts Expense is reported on the income statement as

an operating expense.

The matching rule relates to credit losses by stating that bad debt

in the period of the sale

The Allowance for Doubtful Accounts is necessary because

when recording uncollectible accounts expense, it is not possible to know which specific accounts will not pay.

The interest on a $4,000, 6%, 60-day note receivable is

$40.

The interest on a $4,000, 10%, 1-year note receivable is

$400.

Manning Company uses the percentage of receivables method for recording bad debts expense. The accounts receivable balance is $200,000 and credit sales are $1,000,000. Management estimates that 5% of accounts receivable will be uncollectible. What adjusting entry will Manning Company make if the Allowance for Doubtful Accounts has a credit balance of $2,000 before adjustment?

(DR) Bad Debts Expense ................ 8,000 (CR) Allowance for Doubtful Accounts ... 8,000

The financial statements of the Bolton Manufacturing Company reports net sales of $500,000 and accounts receivable of $50,000 and $30,000 at the beginning of the year and end of year, respectively. What is the receivables turnover ratio for Bolero?

12.5 times

The financial statements of the Bolero Manufacturing Company reports net sales of $500,000 and accounts receivable of $50,000 and $30,000 at the beginning of the year and end of year, respectively. What is the average collection period for accounts receivable in days?

29.2

When an account becomes uncollectible and must be written off

Accounts Receivable should be credited.

An alternative name for Bad Debts Expense is

Uncollectible Accounts Expense.

Bad Debts Expense is considered

a necessary risk of doing business on a credit basis.

Under the allowance method, writing off an uncollectible account

affects only balance sheet accounts.

The net amount expected to be received in cash from receivables is termed the

cash realizable value.

The account Allowance for Doubtful Accounts is classified as a(n)

contra account to Accounts Receivable.

A high receivable turnover ratio indicates

customers are making payments very quickly.

An aging of a company's accounts receivable indicates that $4,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,200 credit balance, the adjustment to record bad debts for the period will require a

debit to Bad Debts Expense for $2,800.

If a company fails to record estimated bad debts expense,

expenses are understated.

Under the allowance, Bad Debt Expense is recorded

for an amount that the company estimates it will not collect.

A debit balance in the Allowance for Doubtful Accounts

indicates that actual bad debt write-offs have exceeded previous provisions for bad debts.

Allowance for Doubtful Accounts on the balance sheet

is deducted from accounts receivable.

The direct write-off method of accounting for uncollectible accounts

is not generally accepted as a basis for estimating bad debts.

The receivable turnover ratio is used to analyze

liquidity.

When the allowance method is used to account for uncollectible accounts, Bad Debts Expense is debited when

management estimates the amount of uncollectibles.

The matching principle

necessitates the recording of an estimated amount for bad debts.

The receivables turnover ratio is computed by dividing

net credit sales by average receivables.

Interest is usually associated with

notes receivable.

Three accounting issues associated with accounts receivable are

recognizing, valuing, and accelerating collections.