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Questions and Answers
What is the contra asset account that offsets accounts receivable on the balance sheet?
What is the contra asset account that offsets accounts receivable on the balance sheet?
In the case of a sales return or allowance, which account is offset by Sales Returns and Allowances?
In the case of a sales return or allowance, which account is offset by Sales Returns and Allowances?
What method is used to record estimated uncollectibles to write off an account?
What method is used to record estimated uncollectibles to write off an account?
When does the present value of the note equal its face value?
When does the present value of the note equal its face value?
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What happens when a note is not issued at face value?
What happens when a note is not issued at face value?
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Study Notes
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.
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Description
Test your knowledge of sales and purchase discounts, allowance methods for uncollectible accounts, and accounting for sales returns and allowances. See if you can calculate the correct entries for various discount and uncollectible account scenarios.
