ch8

Management estimates that 1% of the $100,000 of credit sales will be uncollectiable. THe allowance for doubtful accounts has a $100 unadjusted credit balance. After the adjusting entry is recorded, Bad Debt Expense on the income statement will be _ the allowance for doubtful accounts on the balance sheet.

$100 less than

The objectives when accounting for accounts receivable and bad debts are to:

(1) Report accounts receivable at the amount the company expects to collect (net realizable value) and (2) Match the cost of bad debts to the accounting period in which the related credit sales are made

notes receivable are used for

- selling large dollar value items -lending money to individuals for businesses -extending payment period

The entry to record the right off of a specific customers account requires a

-Credit to Accounts Receivable -debit to allowance for Doubtful account

Which of the foliar similarities between a six month note received an an account receivable

-have the risk of not being collected -our current assets

Bad Debt Expense___________-

-is an estimate -is a cost of extending credit to customers

Which of the following are advantages of using national credit cards

-reduction of bad debts expense -avoid lengthy cash collection.

The days to collect ratio provides what kind of information

-the average number of days from sale on account to collections -that a high number of days means a longer worse time for collection

In which situations does a company issue a note receivable?

-the company lends money to employees or businesses -the company converts an existing account receivable to grant the customer an extended payment. For the amount owed plus interest

based on an aging of accounts receivables, management assigned 1% to the $100,000 of receivables 0-30 days outstanding. 5% to the $100,000 receivables 31-60 days and 20% to the $1,000 of receivables over 60 days. After making the adjusting entry the balance in the allowance for doubtful accounts will equal _.

1700

I'm a broke is a customer that owns the company for credit sales and has declared bankrupt as a result subsidiary account receivable will be eliminated when

A write off is recorded by debiting allowance for doubtful accounts and crediting accounts receivable

Delectable, Inc.'s unadjusted trial balance includes Account Receivable of $10,000; Allowance for Doubtful Accounts of $50 credit balance; and credit sales of $100,000. Based on an aging of its receivable, management estimates that $1000 of receivables will be uncollectible. Delectable's financial statements will show ____

Allowance for Doubtful Accounts of $1000 Bad debt expense of $950

using its aging of accounts receivable, age old, inc. estimates that $90,000 of its $4,000,000 of accounts receivable will be uncollectible. Prior to making its adjusting entry, the unadjusted allowance for doubtful accounts has a debit balance of $1,000. after the adjustment, the____________________

Allowance for doubtful accounts will have a 90000 Credit balance

By comparing the number of days to collect with the link of the credit policy companies can infer that customers ______________ if the days to collect this time

Are more likely to default May be dissatisfied with the product or service

The challenge businesses face when estimating the allowance for previously recorded sales that

At the time of the sale is unknown which particular customer we'll be a bad customer

The entry to record lending $1,000 to an employee at a rate of 6% for 8 months includes a __________.

Credit to Cash of $1,000 and a Debit of Notes Receivable of $1,000.

What are the potential drawbacks of speeding up collections of receivables

Customers may get annoyed and take their business elsewhere Hounding customers to pay if their receivables are past due is time-consuming and costly

On November 1, 2018 incorporation loans and employees 100000 at 6% with the both the interest and principal due in one year the adjusting entry record the interest earned but not received as of December 31, 2018 includes a

Debit to interest receivable of 1000

A high receivables turnover ratio is a sign of accompanies

Effectiveness in and collecting credit

Inner range of and where receivables are sold to another company for immediate cash is called

Factoring

Notes receivable differ from accounts receivable in that note receivable

Generally charge that borrows interests from the day they are signs of the day they are collected

The receivables turnover ratio gives information on how

Many times the company sells and collects amounts on account per year

Match each account with the proper description.

Notes receivable: the principal amount Interest receivable: the amount of interest earned but not yet collected Interest revenue: the amount of interest earned

Collection of a previously written off account is called __________

Recovery

Assume ABC Corporation needs to speed up its cash collections from customers and decides to enter a factoring agreement assumed ABC enters this type of agreement regularly how should the factoring fee be recorded and income statement

Sales expense

bad debt expense is a

Temporary account so it's balance is closed zero doubt at the end of that account period

When will a bankrupt customers account receivable be eliminated when the company records__________

a write off

A (n) _____________ of accounts receivables 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 than newer ones.

aging

The allowance method requires that ___.

allowance for doubtful accounts be netter against accounts receivable bad debt expense be recorded in the same period as the related credit sales

A scenario under which a company's credit card so so I increasing and its Accounts Receivable turnover is decreasing would suggest

channel stuffing

Rank companies A-C based on how favorable their receivables turnover ratio is (from most to least):

company B:5.6 A:3.4 c:2.4

The allowance for doubtful accounts is a contra asset account. increases to the account (to record the period's estimate bad debt expense) are recorded with____________

credits

a disadvantage of extending credit to customers is that the cost may_ the additional sales revenue received through credit transactions

exceed

Allowance for Delfel account is used for accounts receivable but not Notes receivable

false

Notes receivable have the same characteristics as accounts receivable and are interchangeable

false

Given the unadjusted Allowance for Doubtful Accounts has a $50 debit balance, the amount of receivables written off was ____ than the amount estimated in the prior period. Thus bad debt expense will be ____ in the current period than had the unadjusted balance been a credit balance.

greater greater because a DEBIT balance remaining in Allowance account means more was written off than was allowed for in the prior period. Thus in the current period more will need to be EXPENSED in order to compensate for not expensing enough in the prior period.

the 2 steps required using the allowance method, are to _. (select the 2 that apply)

later write-off specific customer balances when they are known to be uncollectible. & first make an end-of-period adjustment to record the estimated bad debts

Using the aging of receivable method and adjusted allowance for doubtful accounts will have a credit balance when the amount of right off record during the period is _____________the amount allowed in the prior accounting.

less than

using its aging of accounts receivable, age old, inc. estimates that $90,000 of its $4,000,000 of accounts receivable will be uncollectible. Prior to making its adjusting entry, the unadjusted allowance for doubtful accounts has a debit balance of $1,000. after the adjustment, bad debt expense on the income statement will be ___________________ the allowance for doubtful accounts on the balance sheet

less than

When a company has earned interests 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.

the receivables turnover ratio is computed as

net sales revenue divided by average net accounts receivable

match the description with the appropriate method(s).

percentage of credit sales: simpler to apply but less accurate aging of accounts receivable: uses more detailed data and is more accurate direct write off: not considered an acceptable method under GAAP

Sales on account will cause an increase in _. ( select all that apply)

sales revenue on the income statement accounts receivable on the balance sheet.

For billing and collection purposes companies keep a separate account receivable Account for each customer called a _______ account

subsidiary

what effect does the collection of a note receivable, excluding interest, have on the accounting equation?

total assets remain the same

The entry that includes a debit to allowance for doubtful accounts and a credit to accounts receivable

write-off of a specific customers account