Ch. 5 accounting
What should a company do to improve its accounts receivable turnover ratio?
give customers credits terms of 2/10, n/30 rather than 1/10, n/30
What is an accurate description of the allowance method for bad debts?
contra account
if honored, you ____ carrying value of the note.
elminate
calculating net profit margin:
net profit margin= net income + net sales
_____ arise from transactions nit involving inventory.
non-trade receivables
the ___ is the party to whom the note is payable.
payee
_______ are used to try and measure the return the company is making on a sale.
profitability ratio
a ______ is a written note to pay the face amount, usually with interest, on demand or at a date in the future.
promissory note
Which one of the approaches for the allowance procedure emphasizes the net realizable value of account receivable on the balance sheet?
the percentage-of-receivables approach
How will the payee of the promissory note record the note on its books?
the promissory note will be recorded as an asset
______ are due from customers purchasing inventory in the ordinary course of business.
trade receivables
_______ represent sales revenues that have been recognized but not realized in cash.
trade receivables
# of days in A/R:
measures the average # of days A/R are on the books
calculating # of days in A/R:
365/A/R turnover
Receivables turnover ratio measures:
a company's ability to collect its accounts receivables
calculating A/R turnover:
account receivable turnover= net sales + average net accounts receivable
If the allowance method of accounting for uncollectible receivables is used, which ledger account is credited to write-off a customer's account as uncollectible?
accounts receivable
how to find the "net realizable value":
accounts receivable-allowance for doubtful accounts
only ______ are reflected in bad debt expense.
actual losses
A(n) ______ categorizes the various accounts receivable amounts by their ages.
aging schedule
The method in which companies use two entries to account for bad debt expense--one to estimate the expense and the second to write off receivables is the _____.
allowance method
the _____ makes an estimate of uncollectible accounts at the end of each period.
allowance method
Forrest Corporation uses the direct write-off method to account for bad debts. What are the effects on the accounting equation of the entry to record the write-off of a customer's balance?
assets and equity decreases
If a company uses the allowance method to account for doubtful accounts, when will the company's equity decrease?
at the end of the accounting period when an adjusting entry for bad debts is recorded
______ violates the matching principle.
bad debt expense
_______ is recognized when a specific account is deemed uncollectible.
bad debt expense
A sales invoice bears the notation 2/10 means _______.
customers can receive 2% discount if they pay within 10 days
expense is often recognized in a ____ period than the revenue associated with the sale.
different
two methods to account for uncollectible accounts:
direct write-off method allowance method
Two methods of accounting for uncontrollable accounts are the:
direct write-off method and the allowance method
three changes to sales revenue include:
discounts, returns, and allowances
_____ means not paid in full
dishonored
calculating gross profit margin:
gross profit margin= gross profit + net sales
____ means paid in full at maturity.
honored
A/R turnover calculates:
how many times receivables are collected during the period
calculating maturity value:
maturity value=the face of the amount of the note + the interest accrued over the life of the note
FASB does not allow the direct write-off method unless bad debt expense is ______.
insignificant
how to calculate interest on a note:
interest= face amount X interest rate X (term/365)
billing documents are usually called ___.
invoices
The days-in-receivables ratio:
is an estimate of the length of time the receivables have been outstanding
If a company uses the direct write-off method to account for bad debts:
it will record bad debt expense only when an account is determined
If a company uses the allowance method of accounting for bad debts:
it will report accounts receivable in the balance sheet at their net realizable value
the ______ is the party making the promise to pay.
maker
The party to a promissory note who will pay the interest and principal is called the:
maker of the note
According to the ____ principle, bad debt expense must be recorded in the period related to the sale.
matching
the _____ of a note is the amount that must be paid at the due date of the note.
maturity value
_____ are receivables that generally specify an interest rate and a maturity date at which any interest and principal must be repaid.
notes receivable
a sale and its associated receivable are recorded:
only when the order, shipping, and billing documents are all present
______ is a key ratio for financial analysts because it tells how much is left from a sales dollar after paying for the product and all its operations.
operating margin
calculating operating margin:
operating margin= operating income + net sales
To encourage prompt payment, sellers offer a(n) ______.
sales discount
The allowance for bad debts represents:
the difference between the recorded value of accounts receivable and the net realizable value of accounts receivable
When the allowance method is used to account for uncollectible accounts, Bad Debt Expense is debited when:
the management estimates the amount of uncollectibles
Which one of the approaches for the allowance procedure emphasizes matching bad debts expense with revenue on the income statement?
the percentage -of-sales approach
One of the weaknesses of the direct write-off method is that it:
violates the matching principle
if dishonored, you _________ and hope of no repayment.
write-off
