account receivable |
A claim against the customer created by selling merchandise or services on credit. |
accounts receivable turnover |
The relationship between net sales and accounts receivable, computed by dividing the net sales by the average net accounts receivable; measures how frequently during the year the accounts receivable are being converted to cash. |
aging the receivables |
The process of analyzing the accounts receivable and classifying them according to various age groupings, with the due date being the base point for determining age. |
Allowance for Doubtful Accounts |
The contra asset account for accounts receivable. |
allowance method |
The method of accounting for uncollectible accounts that provides an expense for uncollectible receivables in advance of their write-off. |
bad debt expense |
The operating expense incurred because of the failure to collect receivables. |
direct write-off method |
The method of accounting for uncollectible accounts that recognizes the expense only when accounts are judged to be worthless. |
dishonored note receivable |
A note that the maker fails to pay on the due date. |
maturity value |
The amount that is due at the maturity or due date of a note. |
net realizable value |
The estimated selling price of an item of inventory less any direct costs of disposal, such as sales commissions. |
notes receivable |
A customer’s written promise to pay an amount and possibly interest at an agreed-upon rate. |
number of days’ sales in receivables |
The relationship between sales and accounts receivable, computed by dividing the net accounts receivable at the end of the year by the average daily sales. |
receivables |
All money claims against other entities, including people, business firms, and other organizations. |
A note receivable due in 12 months is listed on the balance sheet under the caption |
current assets. |
Other receivables do not include |
trade receivables. |
The receivable that is usually evidenced by a formal instrument of credit is a(n) |
note receivable. |
The rule is that an account becomes uncollectible |
There is no general rule as to when an account becomes uncollectible. |
The direct write-off method is required |
for federal income tax purposes. |
Establishing an Allowance for Doubtful Accounts under the allowance method is necessary because |
estimates must be made when recording bad debt expense and it is not possible to know which specific accounts will not be collected. |
A primary weakness of the direct write-off method is that |
the expense of a bad debt is not matched to the period that generated the uncollectible sale amount. |
Extra Co. uses the direct write-off method of accounting for uncollectible accounts receivable. The entry to write off an account that has been determined to be uncollectible would be as follows: |
debit Bad Debt Expense; credit Accounts Receivable. |
The direct write-off method is used by all of the following businesses except |
those that have receivables as a large part of their current assets. |
Under the allowance method, when a specific account is written off |
total assets will be unchanged. |
Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment), and an analysis of accounts in the customer ledger indicates doubtful accounts of $16,000. Which of the following entries records the proper provision for doubtful accounts? |
Debit Bad Debt Expense, $15,500; credit Allowance for Doubtful Accounts, $15,500. |
Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment), and an analysis of accounts in the customer ledger indicates doubtful accounts of $15,000. Which of the following entries records the proper provision for doubtful accounts? |
Debit Bad Debt Expense, $14,500; credit Allowance for Doubtful Accounts, $14,500. |
If Modern Company received $3,650 from Connor Young Company on March 12 for the total amount of an account which had been written off on March 1, the entry to record the cash receipt after the account has been reinstated under the direct write-off method |
is the same as it would be under the allowance method. |
If Modern Company received $3,650 from Connor Young Company on March 12 for the total amount of an account which had been written off on March 1, the entry to reinstate the account under the allowance method would include: |
a credit to Allowance for Doubtful Accounts of $3,650. |
If Modern Company received $3,650 from Connor Young Company on March 12 for the total amount of an account which had been written off on March 1, the entry to reinstate the account under the direct write-off method would include: |
a credit to Bad Debt Expense of $3,650. |
A 60-day, 12% note for $10,000, dated May 1, is received from a customer on account. Assuming a 360-day year, the maturity value of the note is |
$10,200. |
A 90-day, 10% note for $9,000, dated April 15, is received from a customer on account. The face value of the note is |
$9,000. |
A 90-day, 12% note for $10,000, dated May 1, is received from a customer on account. Assuming a 360-day year, the maturity value of the note is |
$10,300. |
Receivables are _________ on the __________, which are listed in order of ____________. |
current assets; balance sheet; liquidity |
All receivables that are expected to be realized within a year are reported in the __________ section of the balance sheet. |
current assets |
The Allowance for Doubtful Accounts is |
subtracted from Accounts Receivable. |
The number of days’ sales in receivables |
is an estimate of the length of time the receivables have been outstanding. |
The numerator in the number of days’ sales in receivables calculation is |
None of these choices are correct. |
Using the following end-of-year information, calculate accounts receivable turnover for Year 2. Year 2: sales are $82,500; average accounts receivable is $11,000. Year 1: sales are $78,000; average accounts receivable is $10,000. Round to one decimal place. |
7.5 |
If Accounts Receivable for Sally Company is equal to $56,850 and the Allowance for Doubtful Accounts is $2,375 at December 31, 2016, what is the amount of net receivables shown on Sally’s balance sheet at December 31, 2016? |
$54,475 |
Notes and accounts receivable that result from sales transactions are sometimes called |
trade receivables. |
An account receivable due in 12 months is listed on the balance sheet under the caption |
current assets. |
Companies may sell their receivables. This practice is called |
factoring. |
The two methods of accounting for uncollectible receivables are the direct method and the __________ method. |
allowance |
If the direct write-off method of accounting for uncollectible receivables is used, what general ledger account is credited when a customer’s account is written off as uncollectible? |
Accounts Receivable. |
Which of the following methods and bases of accounting for uncollectible accounts receivable is inconsistent with the proper application of matching? |
Direct write-off method |
When comparing the direct write-off and allowance methods, which of the following statements applies to the direct write-off method? |
The expense is recognized when the account is written off rather than in the period of sale. |
When comparing the direct write-off and allowance methods, which of the following statements applies to the allowance method? |
The result is based on either (1) a percentage of sales or (2) an analysis of receivables. |
The journal entry to record a note received from a customer to apply on account is |
debit Notes Receivable; credit Accounts Receivable. |
In the current asset section of the balance sheet, receivables are usually listed in order |
that they can be turned into cash. |
Other disclosures related to receivables are reported |
either on the face of the financial statements or in the financial statement notes. |
Using the following end-of-year information, calculate the number of days’ sales in receivables for Year 2.? Year 2: sales are $82,500; average accounts receivable is $11,000. Year 1: sales are $78,000; average accounts receivable is $10,000. Round to one decimal place. |
48.7 |
Under the direct write-off method, when a specific account is written off |
total assets will decrease. |
Under the allowance method of accounting for uncollectible accounts, Bad Debts Expense is debited |
at the end of each accounting period. |
Flora Co. uses the allowance method of accounting for uncollectible accounts receivable. The entry to write off an account that has been determined to be uncollectible would be as follows: |
debit Allowance for Doubtful Accounts; credit Accounts Receivable. |
Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment), and uncollectible accounts expense is estimated at 2% of sales. If sales are $600,000, the amount of the adjusting entry to record the provision for doubtful accounts is |
$12,000. |
The maturity value of a promissory note is |
the face value of the note plus the interest due to the maturity date. |
Two financial measures that are especially useful in evaluating efficiency in collecting receivables are the |
accounts receivable turnover and the number of days’ sales in receivables. |
The most common transaction for creating receivables is |
selling merchandise or services on credit. |
The direct write-off method records bad debt expense |
only when an account is judged to be worthless. |
If Ohio Company received $2,250 as partial payment on the $5,500 account of Carson Mueller Company and wrote off the remaining balance as uncollectible, the only difference between recording the entry under the direct write-off method and the allowance method (assuming that an adequate allowance account had been set up) would be: |
a debit to Bad Debt Expense for $3,250 under the direct method rather than a debit to Allowance for Doubtful Accounts for $3,250 under the allowance method. |
On December 1, Bright Company receives a 6% interest-bearing note from Galvalume Company to settle a $20,000 account receivable. The note is due in 3 months. At December 31, Bright should record interest revenue of |
$100. |
The number of days’ sales in receivables is determined by dividing |
average accounts receivable by average daily sales. |
Accounts receivable turnover is calculated by dividing |
sales by average accounts receivable. |
Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment), and Bad Debt Expense is estimated at 2% of sales. If sales are $500,000, the adjusting entry for uncollectible accounts would include: |
a credit to Allowance for Doubtful Accounts of $10,000. |
If Accounts Receivable for Crawford Company is equal to $172,000 and the Allowance for Doubtful Accounts is $4,500 at December 31, 2016, what is the amount of net receivables shown on Crawford’s balance sheet at December 31, 2016? |
$167,500 |
The party making the promise to pay the promissory note is the |
maker. |
Under the direct write-off method |
bad debt is recorded when specific customer accounts are determined to be uncollectible. |
CH 9
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