Accounting Chapter 5 Flashcards

Questions and Answers

When a business sells goods to a customer, and the customer promises to pay later, this is referred to as?

credit sales

Which of the following are classified as receivables? (Select all that apply)

Accounts payable

Interest due from loans to customers (correct)

Loans by a company to other entities (correct)

Sales revenue

A claim to receive cash in the future is called a?

receivable

What is the definition of accounts receivable?

informal credit agreement with trade customers Signup and view all the answers

A formal credit arrangement between borrower and lender is known as?

note receivable Signup and view all the answers

The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the ________ method of accounts receivables.

aging Signup and view all the answers

Two entries are required when a previous written-off account is paid. These include?

Reinstate the account receivable Signup and view all the answers

Accounts receivable should be classified as a?

current asset Signup and view all the answers

Which of the following items are classified as receivables? (Select all that apply)

Amounts loaned and expected to be repaid Signup and view all the answers

When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a?

sales return Signup and view all the answers

What is a trade discount?

a percentage reduction from list price Signup and view all the answers

A company that expects that some of its customers will not pay the agreed upon sales price must utilize the?

allowance method Signup and view all the answers

The account sales return and allowances account is a _____ account and requires a _ entry to increase the amount.

contra-revenue, debit Signup and view all the answers

Amen debited accounts receivable and credited allowance for doubtful accounts. Amen should also debit _ and credit .

cash, accounts receivable Signup and view all the answers

An ______ is the legal right to receive cash from a credit sale and represents an asset of the company?

accounts receivable Signup and view all the answers

Compared to other methods of estimating uncollectible accounts, the aging of accounts receivable method tends to be?

More accurate Signup and view all the answers

The allowance method is required consistent under?

GAAP Signup and view all the answers

Sales return and allowances account is classified as a?

contra revenue account Signup and view all the answers

Accounts receivable refers to amounts owed to a company by customers for products or services provided in the normal course of business?

true Signup and view all the answers

Sales returns involve a return of product by a customer who is not satisfied with it?

true Signup and view all the answers

Sales allowances represent a reduction in the sales price granted to a customer to satisfy a complaint?

true Signup and view all the answers

What is a sales discount?

a reduction in the sales price granted to a customer for paying promptly Signup and view all the answers

Net revenue is defined as?

sales revenue minus sales allowance/discount/return Signup and view all the answers

What is net realizable value?

amount expected to be received in cash from an asset Signup and view all the answers

Bad debt expense refers to the current year's cost of estimated future uncollectible accounts receivable?

true Signup and view all the answers

Allowance for uncollectible accounts represents total estimated future uncollectible accounts receivable?

true Signup and view all the answers

What could Willie do to make sure he gets a bonus if the company's net income is at least 100,000?

decrease estimate of uncollectible accounts will increase net income Signup and view all the answers

What is a note?

a formal lending/credit agreement based on a written debt instrument, usually interest bearing Signup and view all the answers

What is the definition of notes receivable?

generally longer-term than accounts receivables and include interest received Signup and view all the answers

What is a direct write-off method?

timing of bad debt expense recorded when accounts actually become uncollectible Signup and view all the answers

What is the definition of allowance for uncollectible accounts?

contra-asset estimate of the total uncollectible accounts receivable Signup and view all the answers

Study Notes

Credit Sales and Receivables

Credit sales occur when a business sells goods to a customer with a promise of future payment.
Receivables include interest due from loans, loans made to other entities, tax refund claims, amounts owed by customers, and other expected repayments.

Definitions and Classifications

A receivable represents a claim to receive cash in the future.
Accounts receivable refers to informal credit agreements between a company and its trade customers, while note receivable indicates a formal credit arrangement with terms.
Accounts receivable is classified as a current asset on the balance sheet.

Sales Returns and Allowances

A sales return occurs when merchandise is returned for a refund or credit.
A trade discount is a percentage reduction off the list price.
Sales allowances represent a reduction in sales price to satisfy customer complaints.

Estimation Methods for Uncollectibles

The aging method evaluates various accounts based on their age to estimate uncollectible accounts, typically providing a more accurate estimation than other methods.
The allowance method is required under GAAP to account for potential uncollectibles.

Contra-Revenue Accounts

The sales return and allowances account is a contra-revenue account requiring a debit entry to increase.
Net revenue is calculated as sales revenue minus any sales allowances, discounts, or returns.

Bad Debt and Uncollectible Accounts

Bad debt expense reflects the current year's cost of estimated future uncollectible accounts.
Allowance for uncollectible accounts acts as a contra-asset, estimating the total uncollectible accounts receivable.

Special Scenarios

Adjusting estimates of uncollectible accounts can impact net income; for example, decreasing the estimate may increase net income, potentially affecting bonuses.
Notes receivable typically have longer terms than accounts receivable and may accrue interest.

Example Transactions

Example of receivables transaction includes accepting a six-month note for services provided, accruing interest over the term, and recognizing both service revenue and interest revenue accordingly.

Direct Write-Off Method

The direct write-off method records bad debt expense when accounts become uncollectible rather than estimating through other methods.
This approach is not allowed under US GAAP for financial reporting purposes.

Studying That Suits You

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Description

Test your knowledge of key concepts from Chapter 5 of Accounting. This quiz focuses on important terms related to credit sales and receivables, providing definitions to reinforce your understanding. Use these flashcards to prepare effectively for your accounting assessments.

Accounting Chapter 5 Flashcards

Questions and Answers

When a business sells goods to a customer, and the customer promises to pay later, this is referred to as?

Which of the following are classified as receivables? (Select all that apply)

A claim to receive cash in the future is called a?

What is the definition of accounts receivable?

A formal credit arrangement between borrower and lender is known as?

The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the ________ method of accounts receivables.

Two entries are required when a previous written-off account is paid. These include?

Accounts receivable should be classified as a?

Which of the following items are classified as receivables? (Select all that apply)

When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a?

What is a trade discount?

A company that expects that some of its customers will not pay the agreed upon sales price must utilize the?

The account sales return and allowances account is a ___________ account and requires a _______ entry to increase the amount.

Amen debited accounts receivable and credited allowance for doubtful accounts. Amen should also debit _______ and credit ______.

An ______ is the legal right to receive cash from a credit sale and represents an asset of the company?

Compared to other methods of estimating uncollectible accounts, the aging of accounts receivable method tends to be?

The allowance method is required consistent under?

Sales return and allowances account is classified as a?

Accounts receivable refers to amounts owed to a company by customers for products or services provided in the normal course of business?

Sales returns involve a return of product by a customer who is not satisfied with it?

Sales allowances represent a reduction in the sales price granted to a customer to satisfy a complaint?

What is a sales discount?

Net revenue is defined as?

What is net realizable value?

Bad debt expense refers to the current year's cost of estimated future uncollectible accounts receivable?

Allowance for uncollectible accounts represents total estimated future uncollectible accounts receivable?

What could Willie do to make sure he gets a bonus if the company's net income is at least 100,000?

What is a note?

What is the definition of notes receivable?

What is a direct write-off method?

What is the definition of allowance for uncollectible accounts?

Study Notes

Credit Sales and Receivables

Definitions and Classifications

Sales Returns and Allowances

Estimation Methods for Uncollectibles

Contra-Revenue Accounts

Bad Debt and Uncollectible Accounts

Special Scenarios

Example Transactions

Direct Write-Off Method

Studying That Suits You

Description

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