Intro to financial accounting chapter 8

Sales on account ___.

- Increase Accounts Receivable on the balance sheet and Sales Revenue on the income statement. - Increase assets and stockholders' equity

Accepting only cash and cancelling a credit card program that previously allowed customers to purchase merchandise on credit may cause ________.

- bad debt expense to decrease - sales to decrease

Which of the following are similarities between a 6-month note receivable and an account receivable? They both ___________.

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

Typical sequence of accounting for sales made on account using the allowance method?

1. Accounts Receivable are debited in the period the revenue is recognized. 2. Bad Debt Expense is estimated and recorded with an adjusting entry 3. Specific customer balances are written off

What would be the effect of forgetting to record the adjusting entry for estimating bad debts?

Assets and stockholders' equity would be overstated.

Murphy's Paw, Inc. has credit sales of $100,000 for the month ended May 31. The accounts Receivable balance is $8,000. Management estimates that 1% of its credit sales will be uncollectable. This adjusting entry includes a debit to ______.

Bad debt expense and credit to allowance for doubtful accounts for $1,000

Failing to record bad debt expense in the same period as the related revenue violates which principle?

Expense recognition (matching) people

Why is bad debt expense an estimate?

GAAP require the expense to be debited in the same period as the credit sale, which is before knowing who specifically will not pay.

Bad debt expense is a ___________

Temporary account so its balance is closed (zeroed out) at the end of the accounting period

The adjusting entry to record the estimate amount of bad credit sales is a debit to _______ _______ ________ and a credit to allowance for doubtful accounts.

bad debt expense

Allowance for Doubtful Accounts is a(n) _____-asset account and has a normal ____ balance.

contra; credit

The allowance for doubtful accounts, a contra-asses account is ____ when specific uncollectible accounts accounts are written-off.

debited

The ______ write-off method is not allowed under GAAP.

direct

the entry to record the write-off of a specific customer's account ____ when using the allowance method.

has no net effect on total assets, liabilities or stockholders' equity

The entry that includes a debit to allowance for doubtful accounts and a credit to accounts receivable is a(n) ______

write-off of a specific customer's account