ACC 210 Chapter 5 NCSU

The direct write-off method is required for

income tax purposes.

Tudor Corp. has an ending balance in the accounts receivable account of $20,000. Tudor recorded bad debt expense of $1,000. Tudor has an ending balance in the allowance for uncollectible accounts of $2,000. What is the net accounts receivable balance?

$18,000

Prime Corp. has an ending balance in the accounts receivable account of $100,000. Prime recorded bad debt expense of $3,000. Prime has an ending balance in the allowance for uncollectible accounts of $7,000. What is the net accounts receivable balance?

$93,000

The account "Allowance for Uncollectible Accounts" is classified as

a contra asset to accounts receivable.

A trade discount is

a percentage reduction from list price.

The cost of estimated accounts receivable that will not be collected is referred to as ______ ______ expense.

bad debt

The estimated expense for accounts that may not be collected is referred to as

bad debt expense.

Allowance for Uncollectible Accounts has a credit balance because it is a(n) _____ account.

contra-asset

The account "Allowance for Uncollectible Accounts" normally has a ____ balance

credit

When a business provides services to a customer, and the customer promises to pay later, this is referred to as

credit sales

The income statement approach for estimating bad debts uses a percentage of

credit sales.

The journal entry to record bad debt expense includes

credit to allowance for uncollectible accounts debit to bad debt expense

A sales allowance ____ the amount owed by the customer for merchandise that is _____ by the customer.

decreases; retained

Two important ratios that help in understanding a company's effectiveness in managing receivables are the:

receivable turnover ratio average collection period

A cash discount representing a reduction in the amount to be paid by a credit customer if the customer pays within a specified period of time is also referred to as a(n) ____ discount.

sales

Which of the following is a discount in the amount to be paid if the customer pays within a specified time period?

sales discount

Where is a note receivable reported in the balance sheet?

In either current or noncurrent assets, as appropriate.

When an account previously written off is collected in full, which is required to ensure the accounting for the complete payment history of the customer?

An entry to reinstate the account receivable and an entry to record payment.

Raven receives a 3-year note receivable from a customer for goods sold. How should Raven report this note receivable in its financial statements?

As a noncurrent asset

True or false: Accounts receivable not expected to be collected should be counted in the assets of the company until they are later written off.

false

Under the allowance method, companies estimate _____ uncollectible amounts and report those estimates in the _____ year.

future; current

Receivables not expected to be collected should

not be counted in assets of the company.

Sales to customers in which the customers pay within 30 to 60 days are referred to as

sales on account. credit sales.

When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n)

sales return

When a customer returns a product for a refund, in which account is the entry recorded?

sales returns

Amend Inc. debited Accounts Receivable and credited Allowance for Doubtful Accounts to reestablish an account previously written off. Amend Inc. should also debit _______ and credit _______.

Cash; Accounts Receivable

Joyce Corp. uses the percentage-of-receivables method to account for bad debt expense. Joyce determines that a customer account of $20,000 should be written off as uncollectible. The write off of the account will include which of the following entries?

Debit to Allowance for Uncollectible Accounts Credit to Accounts Receivable

The allowance method is required by

GAAP

What is the formula for the receivables turnover ratio?

Net credit sales divided by average accounts receivable (net).

An informal credit arrangement with a customer for payment to be received after the sale is classified as a(n)

account receivable.

A(n) ______ _______ is the legal right to receive cash from a credit sale and represents an asset of the company.

accounts receivable

The allowance for uncollectible accounts is a contra account to

accounts receivable.

The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the ______ method of accounts receivable.

aging

A partial adjustment to the amount owed by the customer for goods that were not returned, but did not fully meet the customer's expectations is referred to as a sales

allowance

Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to

be more accurate.

To record an estimate for future bad debts at the end of the period, an adjustment would be made with a credit to

allowance for uncollectible accounts.

A company that expects that some of its customers will not pay the agreed upon sales price must utilize the

allowance method

Accounts receivable should be classified as a(n)

assets

Shannon Corp. uses the aging method to account for bad debt expense. Shannon determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account will include

debit Allowance for Uncollectible Accounts.

Ophelia Inc. just learned that Patton Inc., one of its customers with an outstanding accounts receivable balance, filed for bankruptcy. Assuming that the company utilizes the allowance method, Ophelia should record a(n):

decrease in Accounts Receivable

The Accounts Receivable account is reduced when the seller:

determines that a specific customer account will not be collectible

A trade discount is a reduction from the list price, which is used to:

disguise real prices from competitors give quantity discounts to customers change prices without publishing a new catalog

The receivables turnover ratio and the average collection period provide information about a company's

effectiveness in managing receivables

A formal credit arrangement between a creditor and debtor is called a(n)

note receivable.

A formal, signed credit agreement between a lender and a borrower is called a(n) _____ by the lender.

note receivable.

When the direct write-off method is used, an entry for bad debt expense is required

when the account receivable is determined to be uncollectible.

Accounts receivable are typically classified as current assets because

they will be converted to cash within 1 year.

The direct write-off method is used when

uncollectible accounts are not anticipated or are immaterial.

The allowance method estimates

uncollectible accounts.

Using a percentage of each period's net credit sales to estimate bad debt expense is a(n) ______ _______ approach to measuring bad debts.

income statement