Ch. 5 accounting

What should a company do to improve its accounts receivable turnover ratio?

give customers credits terms of 2/10, n/30 rather than 1/10, n/30

What is an accurate description of the allowance method for bad debts?

contra account

if honored, you ____ carrying value of the note.

elminate

calculating net profit margin:

net profit margin= net income + net sales

_____ arise from transactions nit involving inventory.

non-trade receivables

the ___ is the party to whom the note is payable.

payee

_______ are used to try and measure the return the company is making on a sale.

profitability ratio

a ______ is a written note to pay the face amount, usually with interest, on demand or at a date in the future.

promissory note

Which one of the approaches for the allowance procedure emphasizes the net realizable value of account receivable on the balance sheet?

the percentage-of-receivables approach

How will the payee of the promissory note record the note on its books?

the promissory note will be recorded as an asset

______ are due from customers purchasing inventory in the ordinary course of business.

trade receivables

_______ represent sales revenues that have been recognized but not realized in cash.

trade receivables

# of days in A/R:

measures the average # of days A/R are on the books

calculating # of days in A/R:

365/A/R turnover

Receivables turnover ratio measures:

a company's ability to collect its accounts receivables

calculating A/R turnover:

account receivable turnover= net sales + average net accounts receivable

If the allowance method of accounting for uncollectible receivables is used, which ledger account is credited to write-off a customer's account as uncollectible?

accounts receivable

how to find the "net realizable value":

accounts receivable-allowance for doubtful accounts

only ______ are reflected in bad debt expense.

actual losses

A(n) ______ categorizes the various accounts receivable amounts by their ages.

aging schedule

The method in which companies use two entries to account for bad debt expense--one to estimate the expense and the second to write off receivables is the _____.

allowance method

the _____ makes an estimate of uncollectible accounts at the end of each period.

allowance method

Forrest Corporation uses the direct write-off method to account for bad debts. What are the effects on the accounting equation of the entry to record the write-off of a customer's balance?

assets and equity decreases

If a company uses the allowance method to account for doubtful accounts, when will the company's equity decrease?

at the end of the accounting period when an adjusting entry for bad debts is recorded

______ violates the matching principle.

bad debt expense

_______ is recognized when a specific account is deemed uncollectible.

bad debt expense

A sales invoice bears the notation 2/10 means _______.

customers can receive 2% discount if they pay within 10 days

expense is often recognized in a ____ period than the revenue associated with the sale.

different

two methods to account for uncollectible accounts:

direct write-off method allowance method

Two methods of accounting for uncontrollable accounts are the:

direct write-off method and the allowance method

three changes to sales revenue include:

discounts, returns, and allowances

_____ means not paid in full

dishonored

calculating gross profit margin:

gross profit margin= gross profit + net sales

____ means paid in full at maturity.

honored

A/R turnover calculates:

how many times receivables are collected during the period

calculating maturity value:

maturity value=the face of the amount of the note + the interest accrued over the life of the note

FASB does not allow the direct write-off method unless bad debt expense is ______.

insignificant

how to calculate interest on a note:

interest= face amount X interest rate X (term/365)

billing documents are usually called ___.

invoices

The days-in-receivables ratio:

is an estimate of the length of time the receivables have been outstanding

If a company uses the direct write-off method to account for bad debts:

it will record bad debt expense only when an account is determined

If a company uses the allowance method of accounting for bad debts:

it will report accounts receivable in the balance sheet at their net realizable value

the ______ is the party making the promise to pay.

maker

The party to a promissory note who will pay the interest and principal is called the:

maker of the note

According to the ____ principle, bad debt expense must be recorded in the period related to the sale.

matching

the _____ of a note is the amount that must be paid at the due date of the note.

maturity value

_____ are receivables that generally specify an interest rate and a maturity date at which any interest and principal must be repaid.

notes receivable

a sale and its associated receivable are recorded:

only when the order, shipping, and billing documents are all present

______ is a key ratio for financial analysts because it tells how much is left from a sales dollar after paying for the product and all its operations.

operating margin

calculating operating margin:

operating margin= operating income + net sales

To encourage prompt payment, sellers offer a(n) ______.

sales discount

The allowance for bad debts represents:

the difference between the recorded value of accounts receivable and the net realizable value of accounts receivable

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

the management estimates the amount of uncollectibles

Which one of the approaches for the allowance procedure emphasizes matching bad debts expense with revenue on the income statement?

the percentage -of-sales approach

One of the weaknesses of the direct write-off method is that it:

violates the matching principle

if dishonored, you _________ and hope of no repayment.

write-off