Ch 14

Company A sold $100,000 worth of coffee to Company B with sales terms 1/7, n/30. B paid within the discount period, what is the amount of sales discount

$1,000

a contra-asset account, such as Allowance for Doubtful Accounts or Accumulated Depreciation has a normal balance of a ____ and causes total assets to ____

credit, decrease

the Allowance for Doubtful accounts is a contra-asset account. Increases to the account (to record the period's estimated bad debt expense) are recorded with ___

credits

which are netted against sales to arrive at net sales

credit card discounts, sales discounts, sales returns & allowances

sales to customers in which customers pay within 30 days are referred to as

credit sales, sales on account

using the aging approach, management estimates that $1000 of Accounts Receivable will be uncollectible. The Allowance for Doubtful Accounts has a $100 adjusted credit balance. the adjusting entry to record estimated bad debts includes a

credit to Allowance for Doubtful Accounts of $900, debit to Bad Debt Expense of $900

i use the allowance method to account for bad debt expense. its determines that a customer account of $10,000 should be written off as uncollectible. the write off of the account will include a

debit Allowance for Doubtful Accounts

the average collection period (average day sales in receivables) is computed by

365/average net receivables

management estimates that 1% of the $100,000 of credit sales will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted debit balance. The Allowance Doubtful Accounts balance sheet will equal

900

companys unadjusted trial balance includes accounts receivable of $10,000, Allowmance for doubtful accounts as a $50 credit balance; cash sales of $100,000. Based on an aging of its receivable, management estimates that $1,000 of receivables will be uncollectible. Delectable's financial statements will show_____

Allowance for Doubtful Accounts of $1,000, Bad Debt Expense of $950

Percentage of Credit Sales

Estimates bad debt expense based on the historical percentage of sales that lead to bad debt losses

Receivables Turnover Ratio and formula

Net Credit Sales / Average Net Trade Accounts Receivable

allowance for doubtful accounts

a contra asset that is used to reduce accounts receivable by the amount of estimates receivables expected not to be collected

contra asset accounts

accumulated depreciation allowance for doubtful accounts

which method for accounting for doubtful accounts is more accurate and is used monthly or quarterly basis

aging accounts receivable

Which are contra-asset accounts

allowance for doubtful accounts, accumulated depreciation

to help minimize bad debt expenses and provide feedback, a good internal control system will require

approval of customers' credit history, a periodic aging of accounts receivable

Aging of Accounts Receivable Method

as accounts receivable become older and more overdue, it is less likely that they will be collected

the adjusting entry to record the allowance for doubtful accounts causes total

assets to decrease, stockholder's equity to decrease

the account that reports the amount that may not be collected and is matched against credit sales of the period is referred to as ____

bad debt expense

amount not yet collected from customers at the end of the accounting period

balance sheet

using the allowance method, which is the correct adjusting entry to record bad debt expense?

debit Bad Debt Expense and credit allowance for doubtful accounts

Nim Com soup inc uses the allowance method to account for bad debt expense. it determines that a customer account of $10,000 should be written off as uncollectible. the write off of the account will include a

debit allowances fro doubtful accounts

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

since accounting numbers are based on _______ financial statements are susceptible to management manipulation

estimates

aging of accounts receivable

estimates the allowance for doubtful accounts based on the age of each account receivable

higher receivables turnover ratio

faster collection of receivables, company can invest money collected to earn interest income or reduce borrowings to reduce interest expense

net sales are reported on the

first line of the income statement

FOB

free on board

credit card fee/discount

paid by supplier

which method for accounting for doubtful accounts is easiest and is used on a weekly or monthly basis

percentage of credit sales

the objectives when accounting for accounts receivable and bad debts are to ____

report accounts receivable net of the amount the company does not expect to collect, match the cost of bad debts to the accounting period in which the related credit sales are made

revenue recognition principle

requires that revenues be recorded when the company transfers goods and services to customers in the amount it expects to receive

nontrade receivables differ from trade receivables in that nontrade receivables

result from lending money to customers

when merchandise is returned for a refund or for credit to be applied to other purchases, the account called Sales ___ and ___ is debited

returns and allowances

cash collected during the accounting period

statement of cash flows

revenues are recorded when

title and risk of ownership passes

FOB shipping point

title changes hands at shipment, and the buyer normally pays for shipping

FOB destination

title changes hands on delivery, and the seller normally pays for shipping

the average collection period (or average days sales in receivables) is computed as _____

365/receivables turnover ratio

if you forget to make the adjusting entry for bad debt estimate for the accounting period

assets will be overstated, stockholder's equity will be overstates

revenues recognized for FOB destination

at delivery

revenues recognized for FOB shipping point

at shipping point

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

if the direction of chance in AR is a ____ from the prior period, the amount of change is added to net income in the ___ activities section of the statement of cash flows

decrease, operating

sales discounts should appear in a financial statement as a

deduction from sales

notes receivables differ from accounts receivables in that notes receivable

generally charge the borrowers interest from the day they are signed to the day they are collected

When the allowance method is used, the write-off of an uncollectible account

has no effect on net income

receivables turnover ratio

how many times average trade receivables are recorded and collected during the period

amount earned during the accounting period

income statement

what are the financial statement effects of recording bad debt expense using the allowance method?

increase expenses, decrease assets

in which situations does a company issue a notes receivable

the company lends money to employees or businesses, the company makes an exception for a financially troubled customer and expends the payment period and charges interest

receivables turnover ratio most favorable

the higher the more favorable