Questions and Answers
A sales allowance ____ the amount owed by the customer for merchandise that is _____ by the customer.
decreases; retained
What is a partial adjustment to the amount owed by the customer for goods that were not returned but did not fully meet expectations called?
sales allowance
Why are accounts receivable typically classified as current assets?
they will be converted to cash within 1 year
What is a trade discount used for?
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What does the journal entry to record bad debt expense include? (Select all that apply)
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How is the account 'Allowance for Uncollectible Accounts' classified?
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The account 'Allowance for Uncollectible Accounts' normally has a ________ balance.
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What is the estimated expense for accounts that may not be collected called?
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What journal entries are needed when a customer account of $20,000 is written off as uncollectible?
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Allowance for Uncollectible Accounts has a credit balance because it is a(n) _____ account.
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When the direct write-off method is used, an entry for bad debt expense is required when the account receivable is determined to be uncollectible.
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What is required when an account previously written off is collected in full?
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What should Ophelia Inc. record when a customer with an outstanding accounts receivable balance files for bankruptcy?
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When writing off an uncollectible account, total assets are unchanged.
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What is a Note Receivable?
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What is the formula for the Receivable Turnover Ratio?
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What is the Average Collection Period?
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Study Notes
Sales Allowance
- Sales allowance decreases the amount owed by the customer for merchandise retained by them.
- It provides a partial adjustment for goods not returned but falling short of customer expectations.
Accounts Receivable
- Accounts receivable are current assets expected to be converted into cash within one year.
Trade Discounts
- A trade discount reduces the list price to adjust prices without changing catalogs.
- It can disguise actual prices from competitors and offer quantity discounts to customers.
Bad Debt Expense
- Bad debt expense is recorded with a debit to bad debt expense and a credit to allowance for uncollectible accounts.
- Estimated expenses for uncollectible accounts are classified as bad debt expense.
Allowance for Uncollectible Accounts
- This account is a contra asset to accounts receivable and typically maintains a credit balance.
- Writing off an uncollectible account involves debiting allowance for uncollectible accounts and crediting accounts receivable.
Direct Write-off Method
- Requires a record of bad debt expense when an account receivable is confirmed as uncollectible.
- If a previously written-off account is paid, entries need to reinstate the account and record the payment.
Bankruptcy and Accounts Receivable
- If a customer files for bankruptcy, the company using the allowance method must decrease accounts receivable accordingly.
Uncollectible Accounts
- Writing off an uncollectible account does not affect total assets.
Note Receivable
- Note receivable represents a written promise from a customer to pay a specified amount in the future.
Receivable Metrics
- Receivable turnover ratio formula: Net credit sales divided by average receivables.
- Average collection period is calculated as 365 divided by accounts receivable turnover.
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Description
This quiz focuses on key terms and definitions from Chapter 5 of accounting. It covers concepts related to sales allowances and accounts receivable. Test your understanding of essential vocabulary and their meanings in context.
