Accounting CH8 T/F

If a company uses the allowance method to account for uncollectible accounts, the entry to write off an uncollectible account only involves balance sheet accounts.

True

Interest at a rate of 8% on $9,000 for 120 days equals $240.

True

The Allowance for Doubtful Accounts normally has a credit balance.

True

The basic formula for computing interest on an interest-bearing note is face value of note * annual interest rate * time in terms of one year (time fraction) = interest.

True

The direct write-off method of accounting for doubtful accounts mismatches revenue and expenses and overstates assets.

True

The allowance method of accounting for doubtful accounts recognizes the related expense, even though it is not known which customers' accounts will be doubtful.

true

The balance in Allowance for Doubtful Accounts represents the amount a company thinks it will notcollect from a customer.

true

Uncollectible accounts must be estimated because it is not possible to know which accounts will not be collected.

true

The allowance method of accounting for bad debts violates the matching principle.

False

The direct write-off method of accounting for doubtful accounts follows the accrual concept of accounting more closely than does the allowance method of accounting for doubtful accounts.

False

When a firm using the allowance method of estimating bad debts expense recovers the amount of an account receivable previously written off, the recovery is recorded as a debit to Cash and a credit to Bad debt expense.

False

When using the allowance method bad debt expense is recorded when an individual customer defaults.

False