Accounting for Discounts and Uncollectible Accounts Quiz

Accounting Transactions and Concepts

• Sales discounts are given when selling goods at a discount, while purchase discounts are received when buying something with a discount.
• Perpetual and periodic allowance methods are used for uncollectible accounts, with adjusting entries to record estimated uncollectibles and to write off an account.
• The direct write-off method is used for uncollectible accounts, and there is an Allowance for Doubtful Accounts, a contra asset account.
• Sales Returns and Allowances is a contra revenue account to Sales Revenue and offsets sales revenue on the income statement.
• Allowance for Sales Returns and Allowances is a contra asset account to Accounts Receivable and offsets accounts receivable on the balance sheet.
• Notes receivable are recorded when the present value of the note equals its face value due to matching effective and stated interest rates.
• Bigelow records receipt of the note when the present value equals the face value.
• When notes are not issued at face value, the implicit rate is used to equate the total cash to be received to the present value of future cash flows.
• Max sells $5,000 of hurricane glass to Oliver on account and grants a $300 allowance due to defects, estimating an additional $100 in sales returns and allowances.
• Jeremiah Company receives a three-year, $10,000 zero-interest-bearing note, with a present value of $7,721.80.
• The text provides examples of accounting transactions, including sales, allowances, and notes receivable, illustrating various concepts and methods.
• The examples demonstrate the application of accounting principles and the recording of specific transactions to reflect them accurately in financial statements.