AC 210 Chapter 8

If the Allowance for Doubtful Accounts on January 1 equals $10,000 and during the year $9,000 of specific customers' accounts were written off, then its Allowance for Doubtful Accounts will have an unadjusted balance of ______.

$1,000 credit

If the Allowance for Doubtful Accounts on January 1 equals $10,000 and during the year $11,000 of specific customers' accounts were written off, then its Allowance for Doubtful Accounts will have an unadjusted balance of ______.

$1,000 debit

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. 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 greater than

Using the aging approach, management estimates that 10% of the $10,000 of Accounts Receivable will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted credit balance. After the bad debt 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

In its first year of business, ABC, Inc. had Accounts Receivable of $8,000 and Credit sales of $38,000. Management estimates 2% of the total credit sales will be uncollectible. Bad Debt Expense equals ______.

$760

Why is Allowance for Doubtful Accounts credited, instead of Accounts Receivable, when recording the adjusting entry for bad debts?

Accounts Receivable consists of many customer accounts and thus cannot be credited unless it is known which specific customer is not going to pay.

Which method of allowing for estimated uncollectible accounts is generally more accurate?

Aging of accounts receivable method

Which method requires first estimating the desired amount for the Allowance for Doubtful Accounts and then determining the amount of the expense required to get to this desired balance given the amount of the unadjusted balance?

Aging of accounts receivable method

Which of the following is contra-asset account?

Allowance for Doubtful Accounts

Which of the following statements is true?

Allowance for Doubtful Accounts is a permanent account.

ABC Corp. wants to avoid lengthy cash collection periods and, therefore, allows customers to pay with a national credit card, rather than extend credit to its customers directly. What is the downside to such a strategy?

Credit card companies charge fees that reduce profits.

True or false: The adjusting entry to record Bad Debt Expense includes a credit to Accounts Receivable.

False

During the year, ABC Corp. realizes that a particular customer will never pay. What action should ABC take?

Write off the uncollectible account and its corresponding allowance from the accounting records.

Removing an uncollectible account and its corresponding allowance from the accounting records is called ______.

a write-off

The advantage of extending credit to customers is that it helps customers to buy products and services, thereby increasing the seller's revenue. The disadvantages of extending credit are costs related to ______.

bad debt expense

Allowance for Doubtful Accounts is a(n) ________-asset account and has a normal _________balance.

contra; credit

The entry to record the issuance of a note receivable is ______.

debit Notes Receivable and credit Cash

Bad Debt Expense ______.

is an estimate is a cost of extending credit to customers

Using the aging of receivables method, an unadjusted Allowance for Doubtful Accounts will have a credit balance when the amount of write offs recorded during the period is ______ the amount allowed in the prior accounting period.

less than

When accounting for accounts receivable and bad debts, the objectives are to ______.

match the cost of bad debts to the accounting period in which the related credit sales are made report accounts receivable at the net realizable value which equals accounts receivable less the amount the company does not expect to collect.

To be in accordance with GAAP, companies are required to estimate the amount of uncollectible receivables and make an adjusting entry. The effect of the adjusting entry is to ______.

reduce Net Income by debiting Bad Debt Expense and reduce net accounts receivable by crediting Allowance for Doubtful Accounts

A receivable write-off removes a non-paying customer's account receivable and ______.

removes the same amount from Allowance for Doubtful Accounts

The fees charged by major credit card companies are included in ______.

selling expenses on the income statement

When recording the adjusting entry for uncollectible accounts using the allowance method, customers' subsidiary accounts are not directly reduced. The reason is ______.

the company would lose track of which customers still owe money the amounts are estimates and no one knows which particular customers will not pay

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

Delectable, Inc.'s unadjusted trial balance includes Accounts Receivable of $10,000; Allowance for Doubtful Accounts of $50 credit balance; and Sales Revenue of $100,000 (all on credit). Management estimates that 2% of credit sales will be uncollectible. Delectable's financial statements will show ______.

Allowance for Doubtful Accounts of $2,050 credit balance Bad Debt Expense of $2,000

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 credit balance of $1,000. After the adjustment, the ______.

Allowance for Doubtful Accounts will have a $90,000 credit balance

Which of the following is recorded at the end of an accounting period when accounting for receivables using the allowance method?

An estimate is recorded by debiting Bad Debt Expense and crediting Allowance for Doubtful Account in the same period as the related sale.

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

Assets and stockholders' equity would be overstated.

Which of the following accounts are temporary accounts closed (zeroed out) at the end of the accounting period into Retained Earnings?

Bad Debt Expense Sales Revenue Depreciation Expense

Delectable, Inc.'s unadjusted trial balance includes Accounts 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 $1,000 of receivables will be uncollectible. Delectable's financial statements will show ______.

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

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

Expense recognition (matching) principle

Which of the following are disadvantages to extending credit to customers?

Increased wage costs Increased bad debt costs Delayed receipts of cash

An adjusting entry to accrue for interest earned is often needed when a company has ______.

Notes Receivable

Which method requires estimating the amount of the Bad Debt Expense and then determining the balance in the Allowance for Doubtful Accounts which will differ from the expense if there is an unadjusted balance?

Percentage of credit sales method

The days to collect ratio provides what kind of information?

That a higher number of days means a longer (worse) time for collection The average number of days from sale on account to collection

Why is the Bad Debt Expense on the income statement less than the Allowance for Doubtful Accounts on the balance sheet?

The Allowance for Doubtful Accounts had an unadjusted credit balance.

Which account is used to reduce assets for the amount of estimated bad debts?

The contra-asset account called Allowance for Doubtful Accounts

What information is provided by the receivables turnover ratio?

The number of times the average receivables balance is collected during the period That a higher ratio means faster (better) turnover

The estimated amount of credit sales that customers will likely fail to pay is recorded as bad debt expense in which period?

The same period as credit sales

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

Total assets remain the same.

True or false: GAAP require end-of-period adjustments for the estimated bad debts in the period of the credit sale even though the specific, non-paying customers have not yet been identified.

True

Ima Broke is a customer that owes the company for credit sales and has declared bankruptcy. As a result, Ima Broke's subsidiary account receivable will be eliminated when ______.

a write off is recorded by debiting Allowance for Doubtful Accounts and crediting Accounts Receivable

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

at the time of the sale, it is not known which particular customer will be a "bad" customer

Which of the following are advantages of using national credit cards?

avoid lengthy cash collection periods reduction of bad debts expense

Management estimates that 1% of the $100,000 of credit sales will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted credit balance. The adjusting entry to record estimated bad debts includes a ______

debit to Bad Debt Expense of $1,000 credit to Allowance for Doubtful Accounts of $1,000

If the Allowance for Doubtful Accounts has a credit balance prior to recording the adjusting entry for the current period's uncollectible accounts, then the ______.

estimated amount of uncollectibles was greater than the amounts actually written off

Notes receivable are used for ______.

extending payment periods selling large dollar-value items lending money to individuals or businesses

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

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.

greater than