Accounting Chapter on Bad Debts

<p>To adjust for uncollectible accounts (A)</p> Signup and view all the answers

<p>Allowance method (D)</p> Signup and view all the answers

<p>Overstated net income in the recording year (C)</p> Signup and view all the answers

<p>It does not comply with GAAP for many companies. (D)</p> Signup and view all the answers

<p>The original bad debt expense is reversed (C)</p> Signup and view all the answers

<p>By evaluating the age and collection probability of each account (B)</p> Signup and view all the answers

<p>It will increase the bad debts expense (A)</p> Signup and view all the answers

<p>Aging-of-Receivables Method (A)</p> Signup and view all the answers

<p>Bad debts expense = Target balance + Unadjusted debit balance (C)</p> Signup and view all the answers

<p>The need for recording bad debts expense (C)</p> Signup and view all the answers

<p>It estimates uncollectible accounts using a percentage of total receivables (D)</p> Signup and view all the answers

<p>To gather more detailed insights into the status of accounts (D)</p> Signup and view all the answers

<p>A written promise to pay a specific amount at a future date (B)</p> Signup and view all the answers

<p>The entity that signs the note and promises payment (C)</p> Signup and view all the answers

<p>Revenue to the payee for providing a loan (B)</p> Signup and view all the answers

<p>The sum of the principal plus accrued interest (B)</p> Signup and view all the answers

<p>The date by which the note must be paid back (A)</p> Signup and view all the answers

<p>The percentage charged on the principal for one year (A)</p> Signup and view all the answers

<p>It falls on the same day of the month as the issuance date (D)</p> Signup and view all the answers

<p>Count the specified days from the issue date, omitting the issue date (D)</p> Signup and view all the answers

<p>$15 (A)</p> Signup and view all the answers

<p>$60 (C)</p> Signup and view all the answers

<p>$300 (B)</p> Signup and view all the answers

<p>Debit Cash, Credit Notes Receivable (D)</p> Signup and view all the answers

<p>Bad debts expense = Target balance - Unadjusted credit balance of Allowance for Bad Debts (B)</p> Signup and view all the answers

<p>$45 (A)</p> Signup and view all the answers

<p>Accept a 60-day note receivable with 12% interest (D)</p> Signup and view all the answers

<p>$250 (B)</p> Signup and view all the answers

<p>Debit Bad Debts Expense for $200 (C)</p> Signup and view all the answers

<p>Transfer the dishonored note and unpaid interest to Accounts Receivable (B)</p> Signup and view all the answers

<p>$1,200 (C)</p> Signup and view all the answers

<p>Percent-of-sales method (A)</p> Signup and view all the answers

<p>The net credit sales correspond to $300 in Bad Debts Expense (C)</p> Signup and view all the answers

<p>Transfer the note to a different type of receivable (A)</p> Signup and view all the answers

<p>$55 (C)</p> Signup and view all the answers

<p>The estimated uncollectible accounts needed to meet the target balance (D)</p> Signup and view all the answers

<p>It represents a right to receive cash for goods or services. (C)</p> Signup and view all the answers

<p>They represent a promise to pay a fixed amount plus interest. (D)</p> Signup and view all the answers

<p>Current assets (D)</p> Signup and view all the answers

<p>Debtor (B)</p> Signup and view all the answers

<p>30 to 60 days (A)</p> Signup and view all the answers

<p>An overdue account determined not collectible (A)</p> Signup and view all the answers

<p>Percent-of-sales method (B)</p> Signup and view all the answers

<p>It is the date on which the note is due for payment. (B)</p> Signup and view all the answers

A monetary claim against a business or individual, representing the right to receive cash in the future from a current transaction.

The party who receives a receivable in a credit transaction.

The party to a credit transaction who is obligated to pay later.

Amounts due from customers for goods or services already delivered or used but not yet paid for.

Written promises to pay a fixed amount of principal plus interest by a certain date.

The date on which a note receivable is due to be paid.

The transaction of selling goods or services on credit, where payment is expected later.

The process of recording a credit sale in the accounting system.

A method of accounting for uncollectible receivables where bad debts expense is recorded when a customer's account becomes uncollectible.

The direct write-off method is not allowed under GAAP (Generally Accepted Accounting Principles) because it violates the matching principle and can distort a company's financial statements.

An account used to reduce the Accounts Receivable balance to its net realizable value, representing the amount of receivables that are expected to be collected.

This method estimates bad debts expense based on a percentage of the company's total sales. It assumes a certain percentage of credit sales will be uncollectible.

This method estimates uncollectible receivables based on a percentage of the outstanding Accounts Receivable balance. It assumes a certain percentage of the outstanding receivables won't be collected.

This method categorizes outstanding receivables based on their age and assigns a different percentage of uncollectibility to each age group. This is considered the most accurate method for estimating bad debts.

The difference between the total Accounts Receivable balance and the Allowance for Bad Debts balance. It indicates the amount of receivables that the company expects to collect.

The matching principle requires that expenses be recorded in the same period as the revenue they helped generate. The direct write-off method violates this principle by recording expenses in a different period than the related revenue.

The percentage of credit sales that are expected to be uncollectible.

The expense recorded to account for estimated uncollectible accounts.

The desired balance of the Allowance for Bad Debts account.

The adjustment made to the Allowance for Bad Debts account to reach the target balance.

The portion of accounts receivable that is considered uncollectible.

A written promise to pay a specific amount at a future date, usually with interest.

The person or company who signs the note promising to pay.

The person or company who receives the promise to pay.

The amount borrowed by the maker and loaned by the payee.

An expense to the debtor, but revenue to the creditor for lending money.

The date when the note is due to be paid in full.

The total amount paid back at maturity, including principal and interest.

The percentage rate at which interest is charged on the principal.

A method of estimating bad debts expense based on a percentage of the ending balance of Accounts Receivable. This approach uses the balance sheet to determine the amount of the allowance for bad debts.

The target balance in the Allowance for Bad Debts account is determined by applying a percentage to each age category of accounts receivable based on historical data and current economic conditions.

The difference between the target balance of the Allowance for Bad Debts account and the current balance is the amount of bad debts expense to be recognized.

The process of estimating uncollectible accounts using the aging-of-receivables method, where accounts are grouped by age and different percentages are applied to each group.

The calculation of bad debts expense using the aging-of-receivables method involves determining the target balance for the Allowance for Bad Debts and adjusting the current balance to match.

A specific date on which the principal and interest of a note receivable become due, indicating the payment deadline.

When a borrower fails to pay back a note on time, the note is considered dishonored. The unpaid principal and interest are then transferred to Accounts Receivable, and the company must decide how to account for the potentially uncollectible amount.

Interest earned but not yet received is called accrued interest. It represents the revenue the company has earned but not yet collected.

When a promissory note reaches its maturity date and the borrower pays the full amount owed (including both principal and interest), it's considered honored.

A note receivable is an asset representing the company's right to receive a fixed sum of money at a specific future date, usually with interest. It's like a formal promise to pay.

An interest rate represents the percentage of the principal amount (the borrowed money) that the borrower pays as a cost for using the funds for a specific period. It's the cost of borrowing.

The principal amount of a note is the original amount of money borrowed or lent. It's the base of the loan.