Intro to Accounting Chapter 7

Lani Co. uses the allowance method to account for bad debts. At the end of the year their unadjusted trial balance shows an accounts receivable balance of $400,000; allowance for doubtful accounts balance of $400 (debit); and sales of $1,200,000. Based on history, Lani estimates that bad debts will be 1% of accounts receivable. The entry to record estimated bad debts will include a debit to Bad Debts Expense in the amount of:

$4,400

Leo Co. uses the allowance method to account for bad debts. At the end of the year, Leo Co.'s accounts receivable balance is $25,000; allowance for doubtful accounts balance of $100 (credit); and sales of $500,000. Based on history, Leo estimates that bad debts will be 2% of accounts receivable. The entry to record estimated bad debts will include a debit to Bad Debts Expense in the amount of:

$400

Ana Co. uses the allowance method to account for bad debts. At the end of the period, Ana's unadjusted trial balance shows an accounts receivable balance of $40,000; allowance for doubtful accounts balance of $300 (credit); and sales of $500,000. Based on history, Ana estimates that bad debts will be 2% of accounts receivable. The entry to record estimated bad debts will include a debit to bad debts expense in the amount of:

$500

Ace Company sells merchandise to a customer in the amount of $200 on credit, terms n/30. The entry to record this sale would include a debit to the ____________ account:

Accounts Receivable

In July, Lane Co. sells merchandise to Avery Co. on account. In August, Avery pays the balance in full. The entry that Lane will make to record the receipt of cash will include a credit to the _______ account.

Accounts Receivable

(Bad/Invalid) __________ (collectible/debts) __________ are accounts of customers who do not pay what they have promised to pay. It's considered an expense of selling on credit.

Bad Debts

Iron Company collects cash in full from a customer who purchased merchandise last month on credit. To record the receipt of cash, Iron Company should make the following entries in the general journal. (Check all that apply.)

Credit to Accounts Receivable Debit to Cash

True or false: The allowance method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible. No attempt is made to predict bad debts.

False

True or false: The direct write-off method of accounting for bad debts matches the estimated loss from uncollectible accounts receivable against the sales they helped produce.

False

The advantages of using the allowance method to account for bad debts include which of the following? (Check all that apply.)

Reports accounts receivable balance at net realizable value Matches expenses with related sales

Bad debts are:

accounts of customers who do not pay. an expense of selling on credit. also called uncollectible accounts.

The asset account that tracks "amounts due from customers for credit sales" is commonly called:

accounts receivable

When a company makes a sale on credit, it records the amount due from the customer in ____________.

accounts receivable

The ________ ratio is a measure of both the quality and liquidity of accounts receivable; it indicates how often, on average, receivables are received and collected during the period.

accounts receivable turnover

The __________ of accounts receivable method uses several percentages to estimate the allowance.

aging

The __________ method of estimating bad debts uses both past and current receivables information to estimate the allowance amount. Specifically, each receivable is classified by how long it is past its due date.

aging of receivables

The (allowance/direct write-off) __________ method of accounting for bad debts matches the estimated loss from uncollectible accounts receivables against the sales they helped produce.

allowance

The allowance for doubtful accounts is a(n) (current/contra/opposite) __________ asset account and has a normal credit balance.

contra

Zion Company sells merchandise on account to BRC, Inc. in the amount of $1,200. The entry to record this sale would include a: (Check all that apply.)

debit to Accounts Receivable. credit to Sales.

The ____________ method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible. No attempt is made to predict bad debts expense.

direct write-off

Accounts receivable turnover is calculated using the following formula:

net sales/average accounts receivable

Companies allow customers to pay for products using third-party credit cards because: (Check all that apply.)

the seller does not have to evaluate customer credit. the seller avoids the risk of customer non-payment. a variety of payment options typically increase sales volume. cash is received from the credit card company faster than from a credit customer.

The allowance for doubtful accounts is a contra asset account that equals:

total uncollectible accounts