Chpt 8 acct 280
Allowance for Doubtful Accounts is a(n) ______ -asset account and has a normal ______ balance
contra, credit
If the Allowance for Doubtful Accounts on January 1 equals $10,000 and during the year $9,000 of specific customers' accounts were written off, then its Allowance for Doubtful Accounts will have an unadjusted balance of ______.
$1,000 credit
The days to collect ratio is computed as ______
365 divided by the receivable turnover ratio
Percentage of credit sales
Estimates bad debt expense based on the historical percentage of sales that lead to bad debt losses
Aging of accounts receivable
Estimates the allowance for doubtful accounts based on the age of each account receivable
Failing to record bad debt expense in the same period as the related revenue violates which principle?
Expense recognition (matching) principle
An adjusting entry to accrue for interest earned is often needed when a company has ______.
Notes Receivable
Which of the following is recorded with a debit to Interest Receivable and a credit to Interest Revenue?
The adjusting entry to record interest earned but not yet received
a ______ stuffing scenario refers to when a company increases its credit sales by selling to less financially secure customers.
channel
The entry to record lending $1,000 to an employee at a rate of 6% for 8 months includes a ______.
credit to Cash of $1,000 debit to Notes Receivable of $1,000
The adjusting entry to record the allowance for doubtful accounts includes a ______. (Check all that apply.) - credit to Accounts Receivable - debit to Bad Debt Expense - credit to Allowance for Doubtful Accounts - debit to Allowance for Doubtful Accounts - debit to Sales Revenue - credit to Bad Debt Expense - debit to Accounts Receivable - credit to Sales Revenue
debit to Bad Debt Expense credit to Allowance for Doubtful Accounts
If the Allowance for Doubtful Accounts on January 1 equals $10,000 and during the year $11,000 of specific customers' accounts were written off, then its Allowance for Doubtful Accounts will have an unadjusted balance of ______.
$1,000 debit
Which method of allowing for estimated uncollectible accounts is generally more accurate?
Aging of accounts receivable method
Murphy's Paw, Inc. has credit sales of $100,000 for the month ended May 31. The Accounts Receivable balance is $8,000. Management estimates that 1% of its credit sales will be uncollectible. This adjusting entry includes a debit to ______.
Bad Debt Expense and credit to Allowance for Doubtful Accounts for $1,000
Why is Bad Debt Expense an estimate?
GAAP require the expense to be debited in the same period as the credit sale, which is before knowing who specifically will not pay.
The days to collect ratio provides what kind of information?
That a higher number of days means a longer (worse) time for collection The average number of days from sale on account to collection
In which situations does a company issue a note receivable?
The company converts an existing account receivable to grant the customer an extended payment period for the amount owed plus interest. The company lends money to employees or businesses.
Which of the following is recorded with a debit to Notes Receivable and a credit to Cash?
The establishment of a note
During the year, ABC Corp. realizes that a particular customer will never pay. What action should ABC take?
Write off the uncollectible account and its corresponding allowance from the accounting records.
When a company lends money to employees at a rate of 4%, the company will record ______.
an asset called Notes Receivable
A high receivables turnover ratio is a sign of a company's ______.
effectiveness in granting and collecting credit
A company's Bad Debt Expense reports the ______.
estimated amount of this period's credit sales that customers will fail to pay
Sales on account ______.
increase assets and stockholders' equity increase Accounts Receivable on the balance sheet and Sales Revenue on the income statement
When accounting for accounts receivable, a primary objective is to ______.
not overstate assets and stockholders' equity by the estimated amount of bad debt
When accounting for accounts receivable and bad debts, the objectives are to ______. (Check all that apply.)
report accounts receivable at the net realizable value which equals accounts receivable less the amount the company does not expect to collect. match the cost of bad debts to the accounting period in which the related credit sales are made
The fees charged by major credit card companies are included in ______.
selling expenses on the income statement
Bad Debt Expense is a ______.
temporary account so its balance is closed (zeroed out) at the end of the accounting period
When recording the adjusting entry for uncollectible accounts using the allowance method, customers' subsidiary accounts are not directly reduced. The reason is ______.
the company would lose track of which customers still owe money the amounts are estimates and no one knows which particular customers will not pay
Removing an uncollectible account and its corresponding allowance from the accounting records is called ______.
a write-off
Which of the following is contra-asset account?
allowance for doubtful accounts
To be in accordance with GAAP, companies are required to estimate the amount of uncollectible receivables and make an adjusting entry. The effect of the adjusting entry is to ______.
reduce Net Income by debiting Bad Debt Expense and reduce net accounts receivable by crediting Allowance for Doubtful Accounts
ABC, Inc.'s unadjusted trial balance included Accounts Receivable $80,000 debit; Allowance for Doubtful Accounts $750 credit; and credit sales $400,000 credit. ABC uses the aging of accounts receivable method and estimates that $8,000 of its receivables will be uncollectible. After the adjusting entry is made, ABC's financial statements will report ______.
Bad Debt Expense of $7,250 on the income statement Allowance for Doubtful Accounts of $8,000 on the balance sheet
Net sales revenue is $720,000. Beginning and ending net accounts receivable are $62,000 and $58,000, respectively. Calculate the receivables turnover ratio.
12.0 times
Why is Allowance for Doubtful Accounts credited, instead of Accounts Receivable, when recording the adjusting entry for bad debts?
Accounts Receivable consists of many customer accounts and thus cannot be credited unless it is known which specific customer is not going to pay.
In financial statements, Sales on account will cause an increase in ______. (Select all that apply.) - Allowance for Doubtful Accounts on the income statement - Accounts Payable on the balance sheet - Accounts Receivable on the balance sheet - Sales Revenue on the income statement
Accounts Receivable on the balance sheet Sales Revenue on the income statement
Using its aging of accounts receivable, Age Old, Inc. estimates that $90,000 of its $4,000,000 of accounts receivable will be uncollectible. Prior to making its adjusting entry, the unadjusted Allowance for Doubtful Accounts has a credit balance of $1,000. After the adjustment, the ______.
Allowance for Doubtful Accounts will have a $90,000 credit balance
Which of the following is recorded at the end of an accounting period when accounting for receivables using the allowance method?
An estimate is recorded by debiting Bad Debt Expense and crediting Allowance for Doubtful Account in the same period as the related sale.
What would be the effect of forgetting to record the adjusting entry for estimated bad debts?
Assets and stockholders' equity would be overstated.
ABC Corp. wants to avoid lengthy cash collection periods and, therefore, allows customers to pay with a national credit card, rather than extend credit to its customers directly. What is the downside to such a strategy?
Credit card companies charge fees that reduce profits.
Why would a company debit Interest Receivable?
It generated interest on its notes receivable which will be collected in a later accounting period.
Which method requires estimating the amount of the Bad Debt Expense and then determining the balance in the Allowance for Doubtful Accounts which will differ from the expense if there is an unadjusted balance?
Percentage of credit sales method
Which of the following accounts are temporary accounts closed (zeroed out) at the end of the accounting period into Retained Earnings? (Check all that apply.) - Sales Revenue - Allowance for Doubtful Accounts - Accounts Receivable - Accumulated Depreciation - Depreciation Expense - Bad Debt Expense
Sales Revenue Depreciation Expense Bad Debt Expense
Which of the following is recorded with a debit to Cash and a credit to Interest Receivable?
The receipt of an interest payment for interest previously recorded
Which of the following is recorded with a debit to Cash and a credit to Notes Receivable?
The receipt of the principal payment
What effect does the collection of a note receivable, excluding interest, have on the accounting equation?
Total assets remain the same.
Which of the following is the typical sequence of accounting for sales made on account using the allowance method? Place in order of occurrence from top to bottom.
accounts receivable are debited in the period the revenue is recognized, bad debt expense is estimated and recorded with an adjusted entry, specific customer balances are written off
A sale on account is recorded with a debit to ______ ______ and a credit to ______ ______
accounts receivable, sales revenue
Accounts Receivable represent ______.
amounts owed to a business by its customers
The adjusting entry to record the estimated amount of bad credit sales is a debit to ______ ______ ______ and a credit to Allowance for Doubtful Accounts. (Enter only one word per blank.)
bad debit expense
The advantage of extending credit to customers is that it helps customers to buy products and services, thereby increasing the seller's revenue. The disadvantages of extending credit are costs related to ______.
bad debt expense
A scenario under which a company's credit sales are increasing and its accounts receivable turnover is decreasing would suggest ______.
channel stuffing
The entry to record the issuance of a note receivable is ______.
debit Notes Receivable and credit Cash
Using the aging approach, management estimates that 10% of the $10,000 of Accounts Receivable will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted debit balance. The adjusting entry to record estimated bad debts includes a ______.
debit to Bad Debt Expense of $1,100 credit to Allowance for Doubtful Accounts of $1,100
Using the aging approach, management estimates that $1,000 of Accounts Receivable will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted credit balance. The adjusting entry to record estimated bad debts includes a ______. (Check all that apply.)
debit to Bad Debt Expense of $900 credit to Allowance for Doubtful Accounts of $900
The correct journal entry for the collection of a note receivable includes a ______. Assume the collection of interest is recorded separately. (Select all that apply.) - debit to Cash - credit to Notes Receivable - credit to Cash - debit to Notes Receivable - debit to Notes Payable - credit to Notes Payable
debit to Cash credit to Notes Receivable
If the Allowance for Doubtful Accounts has a credit balance prior to recording the adjusting entry for the current period's uncollectible accounts, then the ______.
estimated amount of uncollectibles was greater than the amounts actually written off
Which of the following are advantages of using national credit cards? (Check all that apply.) - no fees other than the cost of bad checks - reduction of bad debts expense - allows for an increase in the selling price - avoid lengthy cash collection periods
reduction of bad debts expense avoid lengthy cash collection periods
Which of the following are disadvantages to extending credit to customers? (Check all that apply.) - Increased wage costs - Increased sales - Increased bad debt costs - Increased credit ratings - Delayed receipts of cash
Increased wage costs, Increased bad debt costs, Delayed receipts of cash
Tresses, Inc., which has a December 31 year end, lent $1,000 on December 1 to an employee at 6% due in 6 months. When will Tresses record Interest Revenue? It will record ______.
an adjusting entry on December 31 with a debit to Interest Receivable and credit to Interest Revenue for the interest generated in December
A contra-asset account, such as Allowance for Doubtful Accounts or Accumulated Depreciation, has a normal balance of a ______ and causes total assets to ______.
credit; decrease
The 2 steps required using the allowance method, are to ______. (Select the 2 that apply.)
first make an end-of-period adjustment to record the estimated bad debts later write-off specific customer balances when they are known to be uncollectible
