Accounting 2036 Exam 2

Which of the following is a contra-asset account? Common Stock Deferred Revenue Depreciation Expense Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

Why is Bad Debt Expense an estimate? ~ The revenue recognition principle requires sales on account be recorded when the amounts are collected. ~ GAAP require the expense to be debited in the same period as the credit sale, which is before knowing who specifically will not pay. ~ Bad Debt Expense is not an estimate. It is recorded when a customer's Accounts Receivable is deemed uncollectible.

GAAP require the expense to be debited in the same period as the credit sale, which is before knowing who specifically will not pay.

During the year, ABC Corp. realizes that a particular customer will never pay. What action should ABC take? ~ Nothing, as Bad Debt Expense has already been recorded. ~ Write off the uncollectible account and its corresponding allowance from the accounting records. ~ Increase Bad Debt Expense.

Write off the uncollectible account and its corresponding allowance from the accounting records.

The journal entry to record $5.6 million in sales on account includes a (Select all that apply) debit to Allowance for Doubtful Accounts of $5.6 million debit to Accounts Receivable of $5.6 million credit to Sales Revenue of $5.6 million debit to Cash of $5.6 million credit to Accounts Payable for $5.6 million

debit to Accounts Receivable of $5.6 million credit to Sales Revenue of $5.6 million

When using the allowance method, the adjusting entry to record estimated bad debt expense includes a ______. (Check all that apply.) debit to Bad Debt Expense debit to Accounts Receivable credit to Bad Debt Expense credit to Accounts Receivable credit to Allowance for Doubtful Accounts

debit to Bad Debt Expense credit to Allowance for Doubtful Accounts

A company's bad debt expense reports the ~ amount owed on loans ~ cost of defaulting on its notes payable ~ estimated amount of this period's credit sales that customers will fail to pay ~ increase in accounts receivable

estimated amount of this period's credit sales that customers will fail to pay

Which of the following statements is true? ~ Allowance for Doubtful Accounts is a permanent account. ~ Bad Debt Expense is a permanent account. ~ An adjusting entry to record the estimated bad debt requires a debit to Allowance for Doubtful Accounts and a credit to Bad Debt Expense. ~ Bad Debt Expense on the income statement will always equal the Allowance for Doubtful Accounts on the balance sheet.

Allowance for Doubtful Accounts is a permanent account.

The allowance method requires that (Select all that apply) ~ Bad Debt Expense be recorded in the period a specific customer's account is written off (removed) ~ Bad Debt Expense be recorded in the same period as the related credit sales ~ Allowance for Doubtful Accounts be netted against Accounts Receivable

Bad Debt Expense be recorded in the same period as the related credit sales Allowance for Doubtful Accounts be netted against Accounts Receivable

The accounting principle that governs the recording of bad debt expense in the same period as sales revenue is called the ______. ~ expense recognition (matching) principle ~ time period assumption ~ revenue recognition principle

expense recognition (matching) principle

An objective of the expense recognition (matching) principle is to have bad debt expense debited in ______. ~ the same period the related credit sales are recorded ~ a later period after the related credit sales are recorded ~ the same period that the related accounts receivable is determined to be uncollectible

the same period the related credit sales are recorded

Which of the following is recorded at the end of an accounting period when accounting for receivables using the allowance method? ~ The write off of specific customer accounts is recorded by debiting Allowance for Doubtful Accounts and crediting Accounts Receivable. ~ An estimate is recorded by debiting Bad Debt Expense and crediting Allowance for Doubtful Account in the same period as the related sale. ~ The write off of specific customer accounts is recorded by debiting Accounts Receivable and crediting Allowance for Doubtful Accounts. ~ The write off of specific customer accounts is recorded by debiting Allowance for Doubtful Accounts and crediting Bad Debt Expense.

An estimate is recorded by debiting Bad Debt Expense and crediting Allowance for Doubtful Account in the same period as the related sale.