accounting exam 3

ABC inc's unadjusted trial balance included accounts receivable $80,000 debit; allowance for doubtful accounts $750 credit; and credit sales $400,000 credit. ABC uses the aging of receivables method and estimates that $8,000 of its receivables will be uncollectible. After the adjusting entry is made, ABC's financial statements will report

-Allowance for doubtful accounts of $8000 on the balance sheet -bad debt expense of $7250 on the income statement

advantages of national credit cards

-no lengthy cash collection periods -reduction of bad debt expense

accounts that are closed (zeroed out) at the end of the accounting period into retained earnings

-sales revenue -bad debt expense -depreciation expense

residual value

-salvage value

subsidiary account

accounts receivable for each customer

term

bond issue that matures on a single date

convertible bonds

bonds that can be exchanged for shares of stock in the issuing company

serial bonds

bonds that mature in installments

recovery

collection of a previously written off account

percentage of sales method

estimates bad debt expense based on the historical percentage of sales that lead to bad bad debt losses

aging of receivables method

estimates the allowance for doubtful accounts based on the age of each account receivable

involuntary disposal of an asset

ex. losing it in a fire

depreciation

matching part of the cost of a long-lived asset with the revenues generated by the asset

receivables turnover ratio

number of times receivables turn over during a period -higher ratio means faster (better) turnover

allowance for doubtful accounts

permanent account

To be in accordance with GAAP, companies are required to estimate the amount of uncollectible receivables and make and adjusting entry. The effect of the adjusting entry is to...

reduce net income by debiting bad debt expense and reduce net accounts by crediting allowance for doubtful accounts

write off

removing an uncollectible account and its corresponding allowance from the accounting records

callable bonds

the issuing company can pay off th bonds at any time

depletion

the process of allocating the cost of natural resources to the period in which the resources are used to help generate revenue

debentures

unsecured bonds

productive asset

used to produce goods or services that will be sold to customers