ACCT 285 ch 8
What potential drawbacks of speeding up collection of receivables?
Hounding customers to pay if their receivables are past due is time consuming and costly; customers may get annoyed and take their business elsewhere
Percentage of credit sales
Simpler to apply but less accurate
Interest revenue
The amount of interest earned
Place the events and proper sequence putting the first step ontop for a two-year note established in November that pays interest annually
1. Debit notes receivable and credit cash 2. Debit interest receivable and credit interest revenue 3. Debit cash and credit interest receivable 4. Debit cash and credit notes receivable, interest revenue and interest receivable
Which of the following are contra-assert accounts?
Accumulated depreciation; allowance for doubtful accounts
An ____ Accounts Receivable's method is based on the amount of days the receivables have been unpaid. When determining the desired amount of the allowance for doubtful accounts, the older receivables are assigned a higher percent then newer ones.
Aging
The allowance method requires that ____
Allowance for doubtful accounts be better against accounts receivable; bad debt expense be recorded in the same period as the related credit sales
Accounts receivable represent ____
Amounts owed to a business by its customers
A scenario under which a company's credit sales are increasing and its accounts receivable turnover is decreasing would suggest _____
Channel stuffing
The entry to record the issuance of a note receivable is _____
Debit notes receivable and credit cash
The _____ write-off it is not allowed under GAAP
Direct
Percentage of credit sales method
Estimates bad debt expense based on the historical percentage of sales that lead to bad debt loses
Aging of receivables method
Estimates the allowance of doubtful accounts based on the age of each account receivable
The 2 steps required using the allowance method, are to ____
First make an end of period adjustment to record the estimated bad debts; later write off specific customer balances when they are known to be uncollectible
Direct write off
It considered an acceptable method under GAAP
Since accounting numbers, such as the allowance for doubtful accounts balance, are based on estimates, financial statements are ____
Susceptible to management manipulation
Interest receivable
The amount of interest earned but not yet collected
In which situations does a company issue a note receivable?
The company lends money to employees or business; the company concerts an existing account receivable to grant the customer an extended payment period for the amount owed plus interest
What info is provided by the receivables turnover ratio?
The number of times receivables turn over during the period; That a higher ratio means faster (better) turnover
Notes receivable
The principal amount
Which of the following is recorded when a debit to cash and credit to notes receivable?
The receipt of the principal payment
The advantage of extending credit to customers is that it helps customers to buy products and services, thereby increasing the sellers revenue. The disadvantages of extending credit our costs related to _____
Bad debt expense
The entry to record the collection and $96,000 on the customers account includes a_____
Debit it cash of $96,000; credit to accounts receivable of $96,000
The entry to record the write-off of a specific customers account required a ____
Debit to allowance for doubtful accounts; credit to accounts receivable
When using the allowance method, the adjusting entry to record estimated bad debt expense includes a _____
Debit to bad debt expense, credit to allowance for doubtful accounts
The correct journal entry for the collection of a note receivable includes a ____ (select all that apply.)
Debit to cash; credit to notes receivable
Abc Corp received a 2-month, 8% per year, $1500 note receivable on dec 1. The adj entry on dec 31 will include a ____
Debit to interest receivable of $10
The entry to record lending $1000 to an employee at a rate of 6% for 8 months includes a ___
Debit to notes receivable of $1000; credit to cash of $1000
On March 1, cents Inc lent $1000 to an employee at a rate of 6% for 3 months. The entry to record the loan of $1000 to the employee includes a ____
Debit to notes receivable; credit to cash of $1000
The allowance method is a method of accounting that _____ net accounts receivable (as well as net income) for estimated bad debts
Decreases
When a company has earned interest in the current period but has not yet recorded the interest, what type of adjustment is the company required to make?
Make an adjusting entry at the end of the current period to accrue the interest earned
By comparing the number of days to collect with the length of the credit policy, companies can infer that customers _____ if the days to collect is high
May be dissatisfied with the product of service; are more likely to default
Which of the following makes notes receivable different from accounts receivable ?
Notes receivable have a stronger legal claim; notes receivable are interest bearing; notes receivable are formal written contracts
Allowance for doubtful accounts is a ____
Permanent account is its balance carries forward to the next accounts period
The three variables in needed to calculate interest are the ____
Principal,time period covered in the interest calculation, annual interest rate
Collection of a previously written-off account is called a ____
Recovery
Which of the following are advantages of using national credit cards?
Reduction of bad debts expense; avoid lengthy cash collection periods
Aging of accounts receivable
Uses more detailed data and is more accurate
During the year, abc Corp realizes that a particular customer will never lay. What action should abc take?
Write off the uncollectible account and its corresponding allowance from the accounting records
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