accounting 201 chapter 5: receivables and sales

The formula to compute the receivables turnover ratio is net credit sales divided by

average accounts receivable.

The direct write-off method is used when

uncollectible accounts are not anticipated or are immaterial.

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

be more accurate.

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

credit sales

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

future; current

The allowance method estimates

uncollectible accounts.

Accounts receivable should be classified as a(n)

asset

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

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

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).

A trade discount is

a percentage reduction from list price.

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

aging

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

bad debt expense.

Sales to customers in which the customers pay within 30 to 60 days are referred to as (Select all that apply.)

credit sales. sales on account.

The direct write-off method is required for

income tax purposes.

Two entries are required when a previously written off account is collected. These two entries include:

reinstate the account receivable. record the collection on the account receivable.

Accounts receivable are typically classified as current assets because

they will be converted to cash within 1 year.

The amount of cash owed to a company by its customers from the sale of goods or services is referred to as

accounts receivable.

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

allowance method

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: (Select all that apply.)

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

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

bad; debt