ACG2021 Chapter 5

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

Accounts receivable

The direct write-off method is required for

income tax purposes.

(Face value x annual interest rate x fraction of the annual period) is the formula for

interest on a note

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? Multiple choice question.

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

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

Be more accurate

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

Credit sales Sales on account

The allowance method is required by

GAAP (Generally Accepted Accounting Principles)

A trade discount is

a reduction from list price.

An _______ __________ is the legal right to receive cash from a credit sale and represents an asset of the company

account receivable

Writing off a customer's account as uncollectible reduces the balance of Multiple choice question.

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

allowance method

Accounts Receivable is an

asset account

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

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

credit sales

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 change prices without publishing a new catalog give quantity discounts to customers

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

future, current

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

record the collection on the account receivable reinstate the account receivable

Accounts receivable are typically classified as current assets because

they will be converted to cash within 1 year.

The allowance method estimates

uncollectible accounts.

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.