Accounting Chapter 5 Flashcards
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Accounting Chapter 5 Flashcards

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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?

<p>All of the above</p> Signup and view all the answers

What does the journal entry to record bad debt expense include? (Select all that apply)

<p>Debit to Bad Debt Expense</p> Signup and view all the answers

How is the account 'Allowance for Uncollectible Accounts' classified?

<p>a contra asset to accounts receivable</p> Signup and view all the answers

The account 'Allowance for Uncollectible Accounts' normally has a ________ balance.

<p>credit</p> Signup and view all the answers

What is the estimated expense for accounts that may not be collected called?

<p>bad debt expense</p> Signup and view all the answers

What journal entries are needed when a customer account of $20,000 is written off as uncollectible?

<p>Debit to Allowance for Uncollectible Accounts</p> Signup and view all the answers

Allowance for Uncollectible Accounts has a credit balance because it is a(n) _____ account.

<p>contra-asset</p> Signup and view all the answers

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.

<p>True</p> Signup and view all the answers

What is required when an account previously written off is collected in full?

<p>An entry to reinstate the account receivable and an entry to record payment.</p> Signup and view all the answers

What should Ophelia Inc. record when a customer with an outstanding accounts receivable balance files for bankruptcy?

<p>decrease in Accounts Receivable</p> Signup and view all the answers

When writing off an uncollectible account, total assets are unchanged.

<p>True</p> Signup and view all the answers

What is a Note Receivable?

<p>a written promise of a customer to pay the business a sum of money at a future date</p> Signup and view all the answers

What is the formula for the Receivable Turnover Ratio?

<p>Net credit sales / average receivables</p> Signup and view all the answers

What is the Average Collection Period?

<p>365 / accounts receivable turnover</p> Signup and view all the answers

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.

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