Accounting I Chapter 14 Flashcards
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Questions and Answers

What are uncollectible accounts?

Accounts receivable that cannot be collected

What is the Allowance Method?

Crediting the estimated value of uncollectible accounts to a contra account

What is Book Value?

The difference between an asset's account balance and its related contra account balance

How is the Book Value of Accounts Receivable calculated?

<p>The difference between the value of Accounts Receivable and its contra account, Allowance for Uncollectible Accounts</p> Signup and view all the answers

What does Net Realizable Value represent?

<p>The amount of accounts receivable a business expects to collect</p> Signup and view all the answers

What is the Percent of Sales Method?

<p>A method used to estimate uncollectible accounts receivable based on a percentage of credit sales</p> Signup and view all the answers

What does the Percent of Accounts Receivable Method estimate?

<p>It estimates uncollectible accounts receivable by analyzing the accounts receivable</p> Signup and view all the answers

What is meant by Aging of Accounts Receivable?

<p>Analyzing accounts receivable according to when they are due</p> Signup and view all the answers

What does Writing Off an Account mean?

<p>Canceling the balance of a customer account because the customer does not pay</p> Signup and view all the answers

What is the Direct Write-off Method?

<p>Recording uncollectible accounts expense only when an amount is actually known to be uncollectible</p> Signup and view all the answers

What is a Promissory Note?

<p>A written and signed promise to pay a sum of money at a specific time</p> Signup and view all the answers

What is a Note Payable?

<p>A promissory note signed by a business and given to a creditor</p> Signup and view all the answers

What is a Note Receivable?

<p>A promissory note that a business accepts from a customer</p> Signup and view all the answers

Who is the Maker of a Note?

<p>The person or business that signs a note and promises to make a payment</p> Signup and view all the answers

What is a Payee?

<p>The person or business to whom the amount due on a note is payable</p> Signup and view all the answers

What is the Principal amount of a note?

<p>The original amount of a note, sometimes referred to as the face amount</p> Signup and view all the answers

What is an Interest Rate?

<p>The percentage of the principal that is due for the use of funds secured by a note</p> Signup and view all the answers

When is the Maturity Date of a note?

<p>The date on which the principal of a note is due to be repaid</p> Signup and view all the answers

What does Time of a Note refer to?

<p>The length of time from the signing date of a note to the maturity date</p> Signup and view all the answers

What is the Maturity Value?

<p>The amount that is due on the maturity date of a note</p> Signup and view all the answers

What is Interest Income?

<p>The interest earned on money owed</p> Signup and view all the answers

What is a Dishonored Note?

<p>A note that is not paid when due</p> Signup and view all the answers

The expense of an uncollectible account will not be recorded in the accounting period that the account becomes uncollectible.

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

The account, Allowance for Uncollectible Accounts, has a normal credit balance.

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

A business usually knows at the end of a fiscal year which customer accounts will become uncollectible.

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

The account, Allowance for Uncollectible Accounts, is reported on the income statement.

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

The book value of accounts receivable must be a reasonable and unbiased estimate of the money the business expects to collect in the future.

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

The percent of sales method of estimating uncollectible accounts expense assumes that a portion of every dollar of sales on account will become uncollectible.

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

The accounting concept, Neutrality, is applied when the process of making accounting estimates is free from bias.

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

The percent of each age group of an accounts receivable aging that is expected to become uncollectible is determined by the Securities and Exchange Commission.

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

The adjusting entry for uncollectable accounts does not affect the balance of the Accounts Receivable account.

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

A business having a $300.00 credit balance in Allowance for Uncollectible Accounts to be $4,000.00 would record a $4,300.00 credit to Allowance for Uncollectible Accounts.

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

When an account is written off as uncollectible, the business sends the customer a memo.

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

When a customer account is written off under the allowance method, the book value of accounts receivable increases.

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

The direct write-off method of accounting for uncollectible accounts does not comply with GAAP.

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

When a previously written-off account is collected, Accounts Receivable is both debited and credited for the amount collected.

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

A note provides the business with legal evidence of the debt should it be necessary to go to court to collect.

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

Total assets are reduced when a business accepts a note receivable from a customer needing an extension of time to pay an account receivable.

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

Interest rates are stated as a percentage of the principal.

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

Interest income is classified as an Other Revenue account.

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

The method for calculating interest is the same for notes payable and notes receivable.

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

Interest income should be recorded on a dishonored note receivable.

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

Match the journal entries related to uncollectible accounts with their descriptions:

<p>Debit: Uncollectible Accounts Expense, Credit: Allowance for Uncollectible Accounts = Adjusting entry for uncollectible accounts expense Debit: Allowance for Uncollectible Accounts, Credit: Accounts Receivable/Sanderson Company = Wrote off Sanderson Company's past-due account as uncollectible Debit: Accounts Receivable/Sanderson Company, Credit: Allowance for Uncollectible Accounts = Received cash in full payment of Sanderson Company's account, previously written off as uncollectible (First Entry) Debit: Cash, Credit: Accounts Receivable/Sanderson Company = Received cash in full payment of Sanderson Company's account, previously written off as uncollectible (Second Entry) Debit: Notes Receivable, Credit: Accounts Receivable/Sanderson Company = Accepted a note from Sanderson Company for an extension of time on its account</p> Signup and view all the answers

Match the journal entries related to notes receivable with their descriptions:

<p>Debit: Cash, Credit: Notes Receivable/Interest Income = Collected a note receivable from Sanderson Company Debit: Accounts Receivable/Williams Supply, Credit: Notes Receivable/Interest Income = Williams Supply dishonored a notes receivable</p> Signup and view all the answers

Study Notes

  • Uncollectible accounts refer to receivables that are deemed irrecoverable.
  • The allowance method estimates uncollectible accounts and credits this estimated value to a contra account.
  • Book value reflects the net amount of an asset after accounting for contra accounts, particularly for accounts receivable.
  • The book value of accounts receivable is calculated as the total receivables minus the allowance for uncollectible accounts.
  • Net realizable value represents the expected cash inflow from accounts receivable.

Estimation Methods for Uncollectibles

  • The percent of sales method estimates uncollectibles based on a percentage of total credit sales.
  • The percent of accounts receivable method analyzes existing receivables to estimate uncollectibles.
  • Aging of accounts receivable involves reviewing accounts based on their due dates to assess collectibility.

Account Management

  • Writing off an account involves canceling a customer's balance due to non-payment.
  • The direct write-off method records uncollectible expenses only when they are confirmed to be uncollectible.

Notes Receivable and Payable

  • A promissory note is a written commitment to pay a specific sum at a designated time.
  • Notes payable are promissory notes issued by businesses to creditors.
  • Notes receivable are accepted from customers in lieu of accounts receivable.
  • The maker of a note is the entity agreeing to repay, while the payee is the entity receiving the payment.

Note Characteristics

  • The principal on a note is its original value, often known as the face amount.
  • The interest rate indicates the cost of borrowing calculated as a percentage of the principal.
  • Maturity date is when the principal amount is due, while time of a note refers to the duration from signing to maturity.
  • Maturity value includes the total amount due at the maturity date, including accrued interest.

Income and Account Balances

  • Interest income is the revenue generated from loaned amounts and is classified under other revenue.
  • A dishonored note refers to a promissory note not paid upon its maturity date.
  • The allowance for uncollectible accounts holds a normal credit balance and impacts the balance sheet.

Accounting Principles and Methods

  • Accounting adjustments for uncollectible accounts do not affect the accounts receivable balance directly.
  • When accounts are written off, a memo might be issued to the customer.
  • The direct write-off method lacks GAAP compliance due to timing inconsistencies in recognizing expenses.

Transactions and Journal Entries

  • Adjusting entries for uncollectible accounts typically involve debiting an expense and crediting the allowance account.
  • The process of writing off accounts involves debiting the allowance for uncollectible accounts and crediting specific accounts receivable.
  • Recovering previously written-off accounts requires re-establishing accounts receivable followed by recording the cash received.
  • Accepting notes from clients does not change the total assets, creating a neutral accounting effect.
  • Recording interest for notes follows the same method for both receivables and payables, ensuring consistency.

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Test your knowledge of uncollectible accounts, allowance methods, and book values with this flashcard set from Accounting I Chapter 14. Ideal for students looking to reinforce their understanding of key accounting concepts and terminology.

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