Accounting CH 7

Conroe Company uses the allowance method to account for bad debts. During the 2010, Conroy determined that a balance of $200 for Alegia Co. was uncollectible and wrote the balance off. What is the total decrease to net income related to this entry?

$0

Thomas Co. sold $1,000 worth of merchandise on a bank credit card less a 3% fee. The entry to record the sales transaction would include a debit to cash in the amount of ___________

$970

The two most common receivables are _________ receivables and __________ receivables

Accounts and Notes

Bad debts are:

Accounts of customers who do not pay Also called uncollectible accounts An expense of selling on credit

The asset account that tracks "amounts due from customers for credit sales" is commonly called:

Accounts receivable

A _____________ is a supplementary record created to maintain a separate account for each customer

Accounts receivable ledger

The ______________ method of accounting for bad debts matches the estimated loss from uncollectible accounts receivables against the sales they helped produce.

Allowance

__________ ____________ are accounts of customers who do not pay what they have promised to pay. It's considered an expense of selling on credit

Bad debts

The person to whom the note is payable

Payee

The __________ method of estimating allowance for doubtful accounts is based on the idea that given percent of a company's credit sales for the period are uncollectible

Percentage of sales

Companies allow customers to pay for products using third-party credit cards because:

The seller does not have to evaluate customer credit The seller avoids the risk of customer non-payment A variety of payment options typically increase sales volume Cash is received from the credit card company faster from a credit customer

The ________ ratio is a measure of both the quality and liquidity of accounts receivable; it indicates how often, on average, receivables are received and collected during the period

Accounts receivable turnover

T. Hillcrest Co. sold $500 of merchandise on a bank credit card less 5% fee. The entry to record this sales transaction would include debit to:

Cash for $475 and credit card expense $25

Zion Company sells merchandise on account to BRC. Inc. in the amount of $1,200. The entry to record this sale would include a:

Debit to Accounts Receivable Credit to Sales

The principle and interest of a note are due on its maturity date. The maker of the note usually __________ the note and pays it in full

Honors

Charge from using money loaned from one entity to another

Interest

One who signed the note and promised to pay at maturity

Maker

Day that the principal and interest must be paid

Maturity Date

Amount that the signer agrees to pay back, not including interest

Principal

To compute interest due on a maturity date, multiply _________ times __________ times the time expressed in fraction of year

Principal and interest

Written promise to pay a specified amount of money

Promissory note

The expected proceeds from accounts receivable, determined by taking accounts receivable less the allowance for doubtful accounts, is called

realizable value

The _______ method, also referred to as balance sheet method, uses balance sheet relations to estimate bad debts—mainly, the relationship between accounts receivable and the allowance account

Aging of accounts receivable

The _______ method of estimating bad debts uses both past and current receivable information to estimate the allowance amount. Specifically, each receivable is classified by how long it is past due date

Aging of receivables

The allowance for doubtful accounts is a ______________ asset account and has a normal credit balance.

Contra

Line Co. uses the allowance method to account for bad debts. On Jan. 28, Lina determines that a $200 balance from ZRT, Inc. is uncollectible and writes the balance off. The journal entry to write this balance off will include a:

Debit to allowance for doubtful accounts Credit to accounts receivable

P. Jameson Co. Sold $500 of merchandise on Master Card credit sales. The net cash receipts from the sale are immediately deposited in the seller's bank account. Master Card charges a 4% fee. The journal entry to record this sales transaction would include a:

Debit to cash for $480 Debit to Credit Card Expense for $20 Credit to Sales for $500

The _________ method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible. No attempt is made to predict bad debts expense

Direct write-off

When a note's maker is unable or refuses to pay at maturity, the note is considered

Dishonored

The direct write-off method records bad debts expense only when an account becomes uncollectible, which is not always in the same period as the sale. For this reason, the direct write-off method violates the ____ __________ principle

Expense recognition principle

The _________ constraint permits the use of the direct write off method when bad debts expenses are very small in relation to a company's other financial statement items, such as sales and net income.

Materiality

The advantages of using the allowance method to account for bad debts include which of the following?

Reports accounts receivable balance at net realizable value Matches expenses with related sales