ACC 201 Chp 8 LS
Which of the following is the typical sequence of accounting for sales made on account using the allowance method? Place in order of occurrence from top to bottom
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
When recording the adjusting entry for uncollectible accounts using the allowances method, customers' subsidiary accounts are not directly reduced. The reason is ______
1. The company would lose track of which customers still owe money 2. The amounts are estimates and no one knows which particular customers will not pay
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
Using the allowance method, which is the correct adjusting journal entry to record bad debt expense?
Debit bad debt expense and credit allowance for doubtful accounts
The entry to record the issuance of a note receivable is ______
Debit notes receivable and credit cash
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
Removing an uncollectible account and its corresponding allowance from the accounting records is called ______
A write-off
______ receivable arise from making sales to customers on account and are non-interest bearing. ______ receivable are formal written contracts that are interest bearing
Accounts & Notes
Sales on account will cause an increase in ______
1. Accounts receivable on the balance sheet 2. Sales revenue on the income statement
The allowance method requirers that ______
1. Allowance for doubtful accounts be netted against accounts receivable 2. Bad debt expense be recorded in the same period as the related credit sales
Accepting only cash and cancelling a credit card program that previously allowed customers to purchase merchandise on credit may cause ______
1. Bad debt expense to decrease 2. Sales to decrease
Allowance for doubtful accounts is a(n) ______-asset account and has a normal ______ balance
1. Contra 2. Credit
The correct journal entry for the collection of a note receivable includes a ______
1. Credit to notes receivable 2. Debit to cash
The journal entry to record $5.6 million in sales on account includes a _____
1. Credit to sales revenue of $5.6 million 2. Debit to accounts receivable of $5.6 million
The adjusting entry to record the allowance for doubtful accounts includes a ______
1. Debit to bad debt expense 2. Credit to allowance for doubtful accounts
Notes receivable are used for ______
1. Extending payment periods 2. Selling large dollar-value items 3. Lending money to individuals or businesses
Which of the following are disadvantages to extending credit to customers?
1. Increased wage costs 2. Increased bad debt costs 3. Delayed receipts of cash
Match the entry that would be recorded for the 4 key events related to issuing an interest-bearing note The receipt of an interest payment
Debit cash and credit interest receivable
Match the entry that would be recorded for the 4 key events related to issuing an interest-bearing note The receipt of the principal payment
Debit cash and credit notes receivable
Match the entry that would be recorded for the 4 key events related to issuing an interest-bearing note The adjusting entry to record interest owed
Debit interest receivable and credit interest revenue
Match the entry that would be recorded for the 4 key events related to issuing an interest-bearing note The issuance of a note
Debit notes receivable and credit cash
The allowance for doubtful accounts, a contra-asset account, is ______ when specific uncollectible accounts are written-off
Debited
The allowance method is a method of accounting that ______ for estimated bad debts
Decreases net accounts receivable
The ______ write-off method is not allowed under GAAP
Direct
Notes receivable differ from accounts receivable 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 entry to record the write-off of an uncollectible account ______
Has no effect on net income
What is occurring if a company is debiting cash and crediting notes receivable
It is collecting the principal on amounts lent earlier
Collection of a previously written-off account is called a(n) ______
Recovery
What effect does the collection of a note receivable, excluding interest, have on the accounting equation?
Total assets remain the same
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
If the allowance for doubtful accounts was debited, what account was credited
Accounts receivable
A sale on account is recorded with a debit to ______ ______ and a credit to ______ ______
Accounts receivable & Sales revenue
When a company lends money to employees at a rate of 4%, the company will record ______
An asset called notes receivable
The challenge business afce when estimating the allowance for previously recorded sales is that ______
At the time of the sale, it is not known which particular customers will be a "bad" customer
Thew write-off of a specific credit customers' account ______
Has no effect on the income statement or the net receivable balance on the balance sheet
A subsidiary account _______
Is kept for each customer's accounts receivable and the total of all customers' accounts receivable is reported on the balance sheet
What effect does the adjusting entry for interest earned but not yet received have on the accounting equation?
It results in an increase in assets and stockholders' equity
An adjusting entry to accrue for interest earned is often needed when a company has ______
Notes receivable
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
Since accounting numbers, such as the allowance for doubtful accounts balance, are based on estimates, financial statement are
Susceptible to management manipulation
Bad debt expense is a ______
Temporary account so its balance is closed (zeroed out) at the end of the accounting period
Match each account with the proper description Notes receivable
The Principal amount
Match each account with the proper description Interest revenue
The amount of interest earned
Match each account with the proper description Interest receivable
The amount of interest earned but not yet collected
Why is bad debt expense an estimate?
The expense recognition principle requires the expense to be debited in the same period as the credit sale, which is before knowing who specifically will not pay
What is the effect of a write-off of a specific customer's account on net receivables on the balance sheet
The net receivable balance is the same
What is the effect of a write-off of a specific customer's account on the net receivable on the balance sheet
The net receivable balance is the same
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
An objective of the expense recognition (matching) principles is to have bad debt expense debited in ______
The same period the related credit sales are recorded
What is the effect on the accounting equation if a company does not write off specific, non-paying customers' accounts receivable?
There is no effect
What effect does a write-off have on the income statement and the net receivable balance on the balance sheet?
There is no effect on either
