Chapter 5
The direct write-off method is used when
uncollectible accounts are not anticipated or are immaterial.
Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to
be more accurate.
A trade discount is a reduction from the list price, which is used to: (Select all that apply.)
change prices without publishing a new catalog disguise real prices from competitors give quantity discounts to customers
The cost of estimated accounts receivable that will not be collected is referred to as
Bad Debt Expense
Average Collection Period Ratio
365/accounts receivable turnover
A formal credit arrangement between a creditor and debtor is called a(n)
note receivable.
Sales to customers in which the customers pay within 30 to 60 days are referred to as (Select all that apply.)
sales on account. credit sales.
Where is a note receivable reported in the balance sheet?
In either current or noncurrent assets, as appropriate.
A Blank is the legal right to receive cash from a credit sale and represents an asset of the company.
Accounts Receivable
The amount of cash owed to a company by its customers from the sale of goods or services is referred to as
Accounts Receivable
When a business provides services to a customer, and the customer promises to pay later, this is referred to as
Credit Sales
True or false: Accounts receivable not expected to be collected should be counted in the assets of the company until they are later written off.
False
Receivables Turnover Ratio and formula
Net Credit Sales / Average Accounts Receivable *Company's ability to collect cash from customers* *Shows number of times the balance is collected throughout the year*
The estimated expense for accounts that may not be collected is referred to as
bad debt expense.
A formal, signed credit agreement between a lender and a borrower is called a(n) _____ by the lender.
note receivable.
Two entries are required when a previously written off account is collected. These two entries include:
record the collection on the account receivable reinstate the account receivable
Revenue Recognition Principle
requires that companies recognize revenue in the accounting period in which the performance is provided regardless of when payment is received .
The allowance method is required by
GAAP
When an account previously written off is collected in full, which is required to ensure the accounting for the complete payment history of the customer?
An entry to reinstate the account receivable and an entry to record payment.
A trade discount is
percentage reduction from the list price
Receivables not expected to be collected should
not be counted in assets of the company.
Raven receives a 3-year note receivable from a customer for goods sold. How should Raven report this note receivable in its financial statements?
As a noncurrent asset
The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the
Aging Method
Amend Inc. debited Accounts Receivable and credited Allowance for Uncollectible Accounts to reestablish an account previously written off. Amend Inc. should also debit _______ and credit _______.
Cash; Accounts Receivable
Accounts receivable should be classified as a(n)
asset.
The Accounts Receivable account is reduced when the seller:
determines that a specific customer account will not be collectible
Accounts receivable are typically classified as current assets because
they will be converted to cash within 1 year.
The receivables turnover ratio and the average collection period provide information about a company's
effectiveness in managing receivables
Under the allowance method, companies estimate _____ uncollectible amounts and report those estimates in the _____ year.
future; current
The allowance method estimates
uncollectible accounts
Two important ratios that help in understanding a company's effectiveness in managing receivables are the:
average collection period receivable turnover ratio
