ACCT 285 ch 8

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What potential drawbacks of speeding up collection of receivables?

Hounding customers to pay if their receivables are past due is time consuming and costly; customers may get annoyed and take their business elsewhere

Percentage of credit sales

Simpler to apply but less accurate

Interest revenue

The amount of interest earned

Place the events and proper sequence putting the first step ontop for a two-year note established in November that pays interest annually

1. Debit notes receivable and credit cash 2. Debit interest receivable and credit interest revenue 3. Debit cash and credit interest receivable 4. Debit cash and credit notes receivable, interest revenue and interest receivable

Which of the following are contra-assert accounts?

Accumulated depreciation; allowance for doubtful accounts

An ____ Accounts Receivable's method is based on the amount of days the receivables have been unpaid. When determining the desired amount of the allowance for doubtful accounts, the older receivables are assigned a higher percent then newer ones.

Aging

The allowance method requires that ____

Allowance for doubtful accounts be better against accounts receivable; bad debt expense be recorded in the same period as the related credit sales

Accounts receivable represent ____

Amounts owed to a business by its customers

A scenario under which a company's credit sales are increasing and its accounts receivable turnover is decreasing would suggest _____

Channel stuffing

The entry to record the issuance of a note receivable is _____

Debit notes receivable and credit cash

The _____ write-off it is not allowed under GAAP

Direct

Percentage of credit sales method

Estimates bad debt expense based on the historical percentage of sales that lead to bad debt loses

Aging of receivables method

Estimates the allowance of doubtful accounts based on the age of each account receivable

The 2 steps required using the allowance method, are to ____

First make an end of period adjustment to record the estimated bad debts; later write off specific customer balances when they are known to be uncollectible

Direct write off

It considered an acceptable method under GAAP

Since accounting numbers, such as the allowance for doubtful accounts balance, are based on estimates, financial statements are ____

Susceptible to management manipulation

Interest receivable

The amount of interest earned but not yet collected

In which situations does a company issue a note receivable?

The company lends money to employees or business; the company concerts an existing account receivable to grant the customer an extended payment period for the amount owed plus interest

What info is provided by the receivables turnover ratio?

The number of times receivables turn over during the period; That a higher ratio means faster (better) turnover

Notes receivable

The principal amount

Which of the following is recorded when a debit to cash and credit to notes receivable?

The receipt of the principal payment

The advantage of extending credit to customers is that it helps customers to buy products and services, thereby increasing the sellers revenue. The disadvantages of extending credit our costs related to _____

Bad debt expense

The entry to record the collection and $96,000 on the customers account includes a_____

Debit it cash of $96,000; credit to accounts receivable of $96,000

The entry to record the write-off of a specific customers account required a ____

Debit to allowance for doubtful accounts; credit to accounts receivable

When using the allowance method, the adjusting entry to record estimated bad debt expense includes a _____

Debit to bad debt expense, credit to allowance for doubtful accounts

The correct journal entry for the collection of a note receivable includes a ____ (select all that apply.)

Debit to cash; credit to notes receivable

Abc Corp received a 2-month, 8% per year, $1500 note receivable on dec 1. The adj entry on dec 31 will include a ____

Debit to interest receivable of $10

The entry to record lending $1000 to an employee at a rate of 6% for 8 months includes a ___

Debit to notes receivable of $1000; credit to cash of $1000

On March 1, cents Inc lent $1000 to an employee at a rate of 6% for 3 months. The entry to record the loan of $1000 to the employee includes a ____

Debit to notes receivable; credit to cash of $1000

The allowance method is a method of accounting that _____ net accounts receivable (as well as net income) for estimated bad debts

Decreases

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

By comparing the number of days to collect with the length of the credit policy, companies can infer that customers _____ if the days to collect is high

May be dissatisfied with the product of service; are more likely to default

Which of the following makes notes receivable different from accounts receivable ?

Notes receivable have a stronger legal claim; notes receivable are interest bearing; notes receivable are formal written contracts

Allowance for doubtful accounts is a ____

Permanent account is its balance carries forward to the next accounts period

The three variables in needed to calculate interest are the ____

Principal,time period covered in the interest calculation, annual interest rate

Collection of a previously written-off account is called a ____

Recovery

Which of the following are advantages of using national credit cards?

Reduction of bad debts expense; avoid lengthy cash collection periods

Aging of accounts receivable

Uses more detailed data and is more accurate

During the year, abc Corp realizes that a particular customer will never lay. What action should abc take?

Write off the uncollectible account and its corresponding allowance from the accounting records

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


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