accounting chapter 14
writing off an account
8. Canceling the balance of a customer account because the customer does not pay.
T
8. The account Allowance for Uncollectible Accounts has a natural credit balance.
F
9. A business usually knows at the end of the fiscal year which customer accounts will become uncollectible.
promissory note
9. A written and signed promise to pay a sum of money at a specified time.
F
7. The expense of an uncollectible account should be recorded in the accounting period that the account becomes uncollectible.
T
16. When using the allowance method, writing off an uncollectible account does not change the net realizable value of accounts receivable.
F
17. The direct write-off method complies with generally accepted accounting principles.
time of a note
17. The length of time from the signing date of a note to the maturity date.
allowance method
1. Crediting the estimated value of uncollectible accounts to a contra account.
note payable
10. A promissory note signed by a business and given to a creditor.
F
10. The account Allowance for Uncollectible Accounts is reported on the income statement.
note receivable
11. A promissory note that a business accepts from a customer.
F
11. The percent of each age group of an accounts receivable aging that is expected to become uncollectible is determined by generally accepted accounting principles.
F
12. The adjusting entry for uncollectible accounts reduces the balance of the Accounts Receivable account.
marker of a note
12. The person or business that signs a note and thus promises to make payment.
T
13. A business having a $400.00 debit balance in Allowance for Uncollectible Accounts and estimating its uncollectible accounts using accounts receivable aging to be $5,000.00 would record a $5,400.00 credit to Allowance for Uncollectible Accounts.
payee
13. The person or business to whom the amount of a note is payable.
T
14. Interest rates are stated as a percentage of the principal.
principal
14. The original amount of a note, sometimes referred to as the face amount.
F
15. Interest income is classified as revenue from normal operations.
interest rate
15. The percentage of the principal that is due for the use of the funds secured by a note.
maturity date
16. The date on which the principal of a note is due to be repaid.
maturity value
18. The amount that is due on the maturity date of a note.
F
18. The direct write-off method matches the expense of uncollectible accounts to the revenue that is earned in the same period.
interest income
19. The interest earned on money loaned.
book value of accounts receivable
2. The difference between the balance of Accounts Receivable and its contra account, Allowance for Uncollectible Accounts.
F
2. When a customer account is written off under the allowance method, the book value of accounts receivable decreases.
dishonored note
20. A note that is not paid when due.
T
3. A note provides a business with legal evidence of a debt in the event it becomes necessary to go to court to collect.
book value
3. The difference between an asset's account balance and its related contra account.
net realizable value
4. The amount of accounts receivable a business expects to collect.
F
4. Total assets are reduced when a business accepts a note receivable from a customer needing an extension of time to pay an account receivable.
percent of sales method
5. A method used to estimate uncollectible accounts receivable that assumes a percent of credit sales will become uncollectible.
T
5. The book value of accounts receivable must be a reasonable and unbiased estimate of the money the business expects to collect in the future.
percent of accounts receivable method
6. A method that uses an analysis of accounts receivable to estimate the amount that will be uncollectible.
T
6. The accounting concept Neutrality is applied when the process of making accounting estimates is free from bias.
aging of accounts receivable
7. Analyzing accounts receivable according to when they are due.
F
The allowance method of accounting for uncollectible accounts does not comply with generally accepted accounting principles.