ACG Test 3

which of the following are disadvantages to extending credit to customers?

* Delayed receipts of cash *increased wage costs *increased bad debt costs

The journal entry to record $5.6 million in sales on account includes a

*Credit to sales revenue of $5.6 million *Debit to accounts receivable of $5.6 million

The correct journal entry for the collection of a note receivable includes a

*Debit to cash *Credit to notes receivable

On March 1, Scents, Inc. lent $1,000 to an employee at a rate of 6% for 3 months. Scents entry to record the loan of $1,000 to its employee includes a

*Debit to notes receivable of $1,000 *Credit to cash of $1,000

The objectives when accounting for accounts receivable and bad debts are to

*match the cost of bad debts to the accounting period in which the related credit sales are made. *report accounts receivable net of the amount the company does not expect to collect

Match the description with the appropriate methods

*percentage of credit sales: simpler to apply but less accurate *aging of accounts receivable: uses more detailed data and is more accurate *direct write off: not considered an acceptable method under GAAP

Which of the following is the typical sequence of accounting for sales made on account using the allowance Method?

1. Accounts receivable are debited in the period the revenue is recognized. 2. Bad debt expense is estimated and recorded with an adjusting entry 3. Specific customer balances are written off

_______ receivable arise from making sales to customers on account and are non-interest bearing. _______ receivable are formal written contracts that are interest bearing.

Accounts, Notes

The entry to record the issuance of a note receivable is

Debit notes receivable and credit cash

The ______ Write-off method is not allowed under GAAP

Direct

A disadvantage of extending credit to customers is that the cost may ______ the additional sales revenue received through credit transactions.

Exceed

What is occurring if a company is debiting cash and crediting notes receivable?

It is collecting the principal on amounts lent earlier

Match each account with the proper description.

Notes receivable: the principal amount Interest receivable: the amount of interest earned but not yet collected Interest revenue: the amount of interest earned

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

Reduce Net Income by debiting Bad Debt Expense and reduce net accounts receivable by crediting Allowance for Doubtful Accounts.

The days to collect ratio provides what kind of information?

The average number of days from sale on account to collection, and that a higher number of days means a longer (worse) time for collection.

When recording the adjusting entry for uncollectible accounts using the allowance method, customers' subsidiary accounts are not directly reduced. The reason is ______.

The company would lose track of which customers still owe money and because the amounts are estimates and no one knows which particular customers will not pay

The estimated amount of credit sales that customers will likely fail to pay is recorded as bad debt expense in which period?

The same period as credit sales

What effect does the collection of a note receivable, excluding interest, have on the accounting equation?

Total assets remain the same

removing an uncollectible account and its corresponding allowance from the accounting records is called _.

a write off

Tresses, Inc., which has a December 31 year end, lent $1,000 on December 1 to an employee at 6% due in 6 months. When will tresses record interest revenue? It will record ______.

an adjusting entry on December 31 with a debit to interest receivable and credit to interest revenue for the interest generated in December

The 3 variables needed to calculate interest are the

annual interest rate, time period covered in the interest calculation and principal