Chapter 7. Accounting for Receivables

Recognizing accrued interest on a notes receivable impacts the ______.

Balance Sheet Income Statement

Collecting cash on a credit card receivable affects the ______.

Balance Sheet Statement of Cash Flows

True or false: Recording the year-end adjustment for uncollectible accounts expense directly reduces the Accounts Receivable account.

False Reason: The Accts. Rec. account is not directly reduced at this time because none of the receivables have actually been determined to be uncollectible.

Accepting a credit card with a fee for services rendered affects the ______.

Income Statement Balance Sheet

The collection of a reinstated receivable will affect all of the following financial statements except:(select all that apply)

Income statement Statement of changes in stockholders' equity

A company experienced an event that had no effect on total assets or net income, but did cause a cash outflow from investing activities. Which of the following events could have caused these effects?

Loaning money with a three year term to maturity

Which method focuses on estimating the most accurate balance for the Allowance for Doubtful Accounts account that appears on the year-end balance sheet?

Percent of receivables

Collecting cash on a credit card receivable affects the ______.

Statement of Cash Flows Balance Sheet

Loaning money (investing in a notes receivable) impacts the ______.

Statement of Cash Flows Balance Sheet

True or false: An advantage of accepting credit cards is that it eliminates the uncollectible accounts expense that merchants would otherwise incur.

True

True or false: Recognizing uncollectible accounts expense increases the accuracy of the financial statements.

True

The amount of interest due each day is called

accrued interest

An account receivable is created when a company ______.

allows a customer to buy now and pay later

The allowance for doubtful accounts is ______.

an estimate that represents the amount of accounts receivable a company expects to be uncollectible

When a company uses the allowance method and reinstates an account receivable that had previously been written-off, total assets ______.

and cash flow from operating activities both do not change

Cash collected on a receivable is a(n) ______ transaction.

asset exchange

The cash collection of a note receivable and the related interest receivable at maturity date is a(n) ______ transaction.

asset exchange

Under the allowance method, recognition of uncollectible accounts expense is made ______.

at the end of the accounting period

Uncollectible accounts expense is frequently called

bad debt expense

When using the allowance method, writing off an uncollectible accounts receivables affects accounts on the:

balance sheet only.

GAAP requires disclosure of ______ the net realizable value of receivables and/or the amount of the allowance account.

both

To distinguish the actual balance in accounts receivable from the net realizable value, accounts use a(n) _________ account called Allowance for Doubtful Accounts.

contra asset

When a company uses the percent of revenue method, adopting more rigorous credit standards will likely ______ the percentage use.

decrease

The cash collection of a note receivable and the related interest receivable at maturity date ______.

has no effect on the income statement has no net effect on the balance sheet

When a company reinstates an account receivable that was written off using the direct-write off method, there is an effect on the ______.

income statement Reason: Expenses decrease balance sheet Reason: Assets and Retained Earnings increase.

Recognizing uncollectible accounts expense under the direct write-off method affects the ______.

income statement Reason: The expense recognition will cause the amount of expenses shown on the income statement to increase, thereby decreasing the amount of net income. balance sheet Reason: The expense recognition will cause assets (accounts receivable) and retained earnings to decrease, thereby affecting the balance sheet.

When a company uses the direct write-off method and reinstates an account receivable that had previously been written-off, total assets ______.

increase and cash flow from operating activities does not change

The collection of a reinstated receivable will

increase cash and decrease accounts receivable

Recognizing uncollectible accounts expense under the direct write-off method includes a(n) ______.

increase to uncollectible accounts expense and a decrease to accounts receivable Reason: The expense is recorded at the time of write-off.

Recognizing accrued interest revenue in Year 1 even though cash will not be collected until year 2 illustrates the

matching

Under generally accepted accounting principles, the direct write-off method is ______.

only allowed if uncollectible accounts are not material

A legally documented credit agreement is called a(n) ______.

promissory note

The method focuses on estimating the most accurate balance for the Allowance for Doubtful Accounts account that appears on the year-end balance sheet is called the percent of

receivables

A company experienced an event that caused total assets and net income to increase, but had no effect on cash flow. This could have been caused by ______.

recognizing accrued interest

A company experienced an event that had no affect on total assets, net income, or cash flow. This event could have been due to ______.

reinstating an account receivable

The percentage used to estimate uncollectible accounts expense under the percent of revenue method is ______.

sometimes adjusted for anticipated future circumstances usually based on past collection experiences

The collection of a receivable due from a credit card company has no effect on _____.

the income statement total assets

Businesses typically recognize accrued interest ______.

when interest is due when financial statements are prepared

A company experienced an event that had no affect on total assets, net income, or cash flow. This event could have been due to ______.

writing off an uncollectible account

Jack Company loaned $12,000 to Jill Company on September 1, Year 1 for a one year term at 5% interest. On December 31, Year 1, Jack will recognize accrued interest of ______.

$200 Reason: $12,000 Principal × 5% = $600 per year; $600 ÷ 12 = $50 per month × 4 months = $200

Jack Company loaned $12,000 to Jill Company on September 1, Year 1 for a one year term at 5% interest. In Year 2, when the note matures, Jack will recognize interest revenue of ______.

$400 Reason: $12,000 Principal × 5% = $600 per year; $600 per year ÷ 12 months = $50 per month; $50 per month × 8 months = $400

Frost Company accepted a credit card for $6,000 of services it provided to a customer. The credit card carried a card fee amounting to 5% of sales. Recognizing this event would cause increases of ______.

$5,700 to Accounts Receivable $300 to Credit Card Expense $6,000 to Service Revenue

Alpha Company loaned $5,000 to Beta Company on October 1, Year 1 at 6% interest. On December 31, Year 1 Alpha Company's financial statements will report accrued interest of ______.

$75. Reason: $5,000 Principal × 6% = $300 per year; $300 per year ÷ 12 months = $25 per month; $25 per month × 3 months = $75

At the end of year 1, Barton Enterprises had accounts receivable of $32,000. Revenue for year 1 was $438,000. Barton Enterprises estimates that 2% of revenue will be uncollectible. Using the percent of revenue method, uncollectible accounts expense on the Year 1 income statement will be ______.

$8,760

A promissory note is ______.

-a legally documented credit agreement -often used when a company extends credit for a long time

The advantages of third-party credit card sales for the merchant include ______.

-an increase in sales from existing credit cardholders -no expense of credit approval and record maintenance -no risk of slow collection or default

Disadvantage of using the direct write-off method of recognizing uncollectible accounts expense include ______.

-assets are overstated Reason: Under the direct write-off method, accounts receivable is shown on the balances at its full balance even though some of the balance will never be collected. -expenses are not matched with revenue. Reason: Under the direct write-off method, uncollectible accounts are expensed when they are determined, even if the associated revenue was recognized in a previous accounting period.

Making the year-end adjustment for uncollectible accounts expense impacts the ______.

-balance sheet -income statement

Collecting an account receivable impacts the ______.

-statement of cash flows -balance sheet

The net realizable value of accounts receivable is ______.

-the ending balance of accounts receivable less an allowance representing the amount of accounts a company expects to be uncollectible -an estimate that represents the amount of cash a company expects to collect from its accounts receivable

The collection of a receivable due from a credit card company has no effect on _____.

-the income statement -total assets

Barton Enterprises estimates that 1% of revenue will be uncollectible. If Barton's revenue for the year is $250,000, and ending accounts receivable equals $102,500, the uncollectible accounts expense shown on the income statement, using the percent of revenue method, will be $

2,500

Able Company loaned $10,000 to Jill Company on June 1, Year 1 for a one year term at 9% interest. In Year 2, when the note matures, Able will recognize accrued interest revenue of $

375 reason: june - decemeber year 1 = $525 accrued interest $900 total interest - $525 = $375 accrued interested for year 2

A company experienced an event that caused total assets and net income to increase, but had no affect on cash flow. This could have been caused by ______.

accepting a credit card for services provided

When a company allows a customer to "buy now and pay later," it is called an ______.

account receivable