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Questions and Answers
The amount of cash owed to a company by its customers from the sale of goods or services is referred to as?
The amount of cash owed to a company by its customers from the sale of goods or services is referred to as?
Accounts Receivable
Sales to customers in which the customer pays within 30 to 60 days are referred to as?
Sales to customers in which the customer pays within 30 to 60 days are referred to as?
- Cash sales
- Credit sales (correct)
- Deferred sales
- Sales on account (correct)
Total revenues less discount, returns, and allowances are referred to as 1. revenues.
Total revenues less discount, returns, and allowances are referred to as 1. revenues.
Net
Trade discount is?
Trade discount is?
When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n)1.___ 2.__
When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n)1.___ 2.__
An informal credit arrangement with a customer for payment to be received after the sale is classified as a(n)?
An informal credit arrangement with a customer for payment to be received after the sale is classified as a(n)?
When a business provides services to a customer, and the customer promises to pay later, this is referred to as?
When a business provides services to a customer, and the customer promises to pay later, this is referred to as?
Net revenues is calculated as total revenues minus which 3 items?
Net revenues is calculated as total revenues minus which 3 items?
A trade scout is a reduction from the list price, which is used to: (Hint 3 things)
A trade scout is a reduction from the list price, which is used to: (Hint 3 things)
When a customer returns a product for a refund, in which account is the entry recorded?
When a customer returns a product for a refund, in which account is the entry recorded?
Partial adjustment to the amount owed by the customer for goods that were not returned, but did not fully meet the customer's expectations is referred to as a sales?
Partial adjustment to the amount owed by the customer for goods that were not returned, but did not fully meet the customer's expectations is referred to as a sales?
A(n) _1 _2 is the legal right to receive cash from a credit sale and represents an asset of the company.
A(n) _1 _2 is the legal right to receive cash from a credit sale and represents an asset of the company.
A discount in the amount to be paid if the customer pays within a specified time period is called?
A discount in the amount to be paid if the customer pays within a specified time period is called?
Accounts receivable should be classified as a(n)?
Accounts receivable should be classified as a(n)?
A company that expects that some of its customers will not pay the agreed upon sales price must utilize the?
A company that expects that some of its customers will not pay the agreed upon sales price must utilize the?
The allowance method estimates?
The allowance method estimates?
The sales allowance 1 the amount owned by the customer for merchandise that is __2
The sales allowance 1 the amount owned by the customer for merchandise that is __2
A cash discount representing a reduction in the amount to be paid by a credit customer if the customer pays within a specific period of time is also referred to as a(n)1 discount.
A cash discount representing a reduction in the amount to be paid by a credit customer if the customer pays within a specific period of time is also referred to as a(n)1 discount.
Accounts receivable not expected to be collected should be counted in assets of the company until they are later written off.
Accounts receivable not expected to be collected should be counted in assets of the company until they are later written off.
Accounts receivable are typically classified as current assets because?
Accounts receivable are typically classified as current assets because?
What is a downside of extending credit to customers?
What is a downside of extending credit to customers?
The allowance method is required by_______1________
The allowance method is required by_______1________
Under the allowance method, companies estimate 1 uncollectible amounts and report those estimates in the 2 year.
Under the allowance method, companies estimate 1 uncollectible amounts and report those estimates in the 2 year.
The journal entry to record bad debt expense includes which two entries?
The journal entry to record bad debt expense includes which two entries?
Receivables not expected to be collected should initially be included as 1 and then be 2 off when the customer does not 3__.
Receivables not expected to be collected should initially be included as 1 and then be 2 off when the customer does not 3__.
The receivables not expected to be collected should not be counted in assets of the company?
The receivables not expected to be collected should not be counted in assets of the company?
The allowance for uncollectible accounts is contra account to?
The allowance for uncollectible accounts is contra account to?
A company that expects that some of its customers will not pay the agreed upon sales price must utilize the?
A company that expects that some of its customers will not pay the agreed upon sales price must utilize the?
Two entries are required when a previously written off account is collected. These two entries include:
Two entries are required when a previously written off account is collected. These two entries include:
The receivables turnover ratio and the average collection period provide information about a company's?
The receivables turnover ratio and the average collection period provide information about a company's?
A formal signed credit agreement between a lender and a borrower is called a(n)?
A formal signed credit agreement between a lender and a borrower is called a(n)?
Where is a note receivable reported in the balance sheet?
Where is a note receivable reported in the balance sheet?
Amend Inc. debited Accounts Receivable and credited Allowance for Uncollectible Accounts to reestablish an account previously written off. Amend Inc. should also debit __________ and credit __________.
Amend Inc. debited Accounts Receivable and credited Allowance for Uncollectible Accounts to reestablish an account previously written off. Amend Inc. should also debit __________ and credit __________.
To record an estimate for future bad debts at the end of the period, an adjustment would be made with a credit to?
To record an estimate for future bad debts at the end of the period, an adjustment would be made with a credit to?
The account 'Allowance for Uncollectible Accounts' is classified as?
The account 'Allowance for Uncollectible Accounts' is classified as?
Prime Corp. has an ending balance in the accounts receivable account of $100,000. Prime recorded bad debt expense of $3,000. Prime has an ending balance in the allowance for uncollectible accounts of $7,000. What is the net accounts receivable balance?
Prime Corp. has an ending balance in the accounts receivable account of $100,000. Prime recorded bad debt expense of $3,000. Prime has an ending balance in the allowance for uncollectible accounts of $7,000. What is the net accounts receivable balance?
Allowance for Uncollectible Accounts has a credit balance because it is a(n)?
Allowance for Uncollectible Accounts has a credit balance because it is a(n)?
Receivables not expected to be collected should NOT?
Receivables not expected to be collected should NOT?
The allowance for uncollectible accounts is a contra account to?
The allowance for uncollectible accounts is a contra account to?
The cost of estimated accounts receivable that will not be collected is referred to as?
The cost of estimated accounts receivable that will not be collected is referred to as?
Tudor Corp. has an ending balance in the accounts receivable account of $20,000. Tudor recorded bad debt expense of $1,000. Tudor has an ending balance in the allowance for uncollectible accounts of $2,000. What is the net accounts receivable balance?
Tudor Corp. has an ending balance in the accounts receivable account of $20,000. Tudor recorded bad debt expense of $1,000. Tudor has an ending balance in the allowance for uncollectible accounts of $2,000. What is the net accounts receivable balance?
The account 'Allowance for Uncollectible Accounts' normally has what type of balance?
The account 'Allowance for Uncollectible Accounts' normally has what type of balance?
Joyce Corp. uses the percentage-of-receivables method to account for bad debt expense. Joyce determines that a customer account of $20,000 should be written off as uncollectible. The write-off of the account will include which of the following entries?
Joyce Corp. uses the percentage-of-receivables method to account for bad debt expense. Joyce determines that a customer account of $20,000 should be written off as uncollectible. The write-off of the account will include which of the following entries?
The estimated expense for accounts that may not be collected is referred to as?
The estimated expense for accounts that may not be collected is referred to as?
When the allowance method is used, the write-off of an uncollectible account?
When the allowance method is used, the write-off of an uncollectible account?
Allowance for Uncollectible Accounts has a credit balance because it is what type of account?
Allowance for Uncollectible Accounts has a credit balance because it is what type of account?
Ophelia Inc. just learned that Patton Inc., one of its customers with an outstanding accounts receivable balance, filed for bankruptcy. Assuming that the company utilizes the allowance method, Ophelia should record a(n)?
Ophelia Inc. just learned that Patton Inc., one of its customers with an outstanding accounts receivable balance, filed for bankruptcy. Assuming that the company utilizes the allowance method, Ophelia should record a(n)?
Shannon Corp. uses the aging method to account for bad debt expense. Shannon determines that a customer account of $10,000 should be written off as uncollectible. The write-off of the account will include?
Shannon Corp. uses the aging method to account for bad debt expense. Shannon determines that a customer account of $10,000 should be written off as uncollectible. The write-off of the account will include?
Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to?
Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to?
Pixie Inc. writes off a specific accounts receivable. If Pixie is using the allowance method, how will the write-off affect the net income?
Pixie Inc. writes off a specific accounts receivable. If Pixie is using the allowance method, how will the write-off affect the net income?
The Accounts Receivable account is reduced when the seller adopts which method?
The Accounts Receivable account is reduced when the seller adopts which method?
When an account previously written off is collected in full, which is required to ensure the accounting for the complete payment history of the customer?
When an account previously written off is collected in full, which is required to ensure the accounting for the complete payment history of the customer?
Collecting cash on an account previously written off has no effect on total assets and no effect on net income.
Collecting cash on an account previously written off has no effect on total assets and no effect on net income.
The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the _1 method of accounts receivable.
The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the _1 method of accounts receivable.
The older the account, the less likely it is to be collected.
The older the account, the less likely it is to be collected.
When the direct write-off method is used, when is an entry for bad debt expense required?
When the direct write-off method is used, when is an entry for bad debt expense required?
What is a formal arrangement between a creditor and debtor called?
What is a formal arrangement between a creditor and debtor called?
Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to be more accurate.
Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to be more accurate.
The direct write-off method is used when?
The direct write-off method is used when?
When uncollectible accounts are not anticipated or are immaterial, which method is used?
When uncollectible accounts are not anticipated or are immaterial, which method is used?
Notes receivable are similar to accounts receivable.
Notes receivable are similar to accounts receivable.
Notes receivable are more formal credit arrangements evidenced by written debt instruments, or notes.
Notes receivable are more formal credit arrangements evidenced by written debt instruments, or notes.
The accounts receivable account is reduced when the seller?
The accounts receivable account is reduced when the seller?
As appropriate, either current or noncurrent assets are reported in the balance sheet as?
As appropriate, either current or noncurrent assets are reported in the balance sheet as?
Two important ratios that help in understanding a company's effectiveness in managing receivables are the:
Two important ratios that help in understanding a company's effectiveness in managing receivables are the:
Raven receives a 3-year note receivable from a customer for goods sold. How should Raven report this note receivable in its financial statements?
Raven receives a 3-year note receivable from a customer for goods sold. How should Raven report this note receivable in its financial statements?
Study Notes
Accounts Receivable
- Represents cash owed to a company by customers from goods or services sold.
- Classified as an asset on the balance sheet, often as a current asset.
Types of Sales
- Sales on account involve customers paying within 30 to 60 days, also known as credit sales.
- Net revenues are total revenues minus discounts, returns, and allowances.
Discounts and Allowances
- Trade discounts involve percentage reductions from list prices.
- Sales returns occur when merchandise is returned for a refund, reducing the sale's original amount.
- Sales allowances are partial adjustments when goods are retained but expectations are not fully met.
Credit Arrangements
- Informal credit agreements with customers result in accounts receivable.
- Cash discounts reward customers for paying early, enhancing cash flow management.
Collection and Estimation Methods
- The allowance method estimates uncollectible accounts and is required by GAAP.
- Companies must account for future uncollectibles using estimates reported in the current year.
- The aging method provides a systematic approach to estimating uncollectibles based on account age.
Importance of Aging Accounts
- Older accounts are less likely to be collected; hence, recognizing bad debts earlier is crucial for accurate financial reporting.
- Companies need to make journal entries for estimated bad debts, which include debiting bad debt expense and crediting the allowance for uncollectible accounts.
Writing Off Accounts
- When an account is deemed uncollectible, the entry decreases accounts receivable and the allowance for uncollectible accounts.
- When recovering a previously written-off account, two entries are needed: reinstating the receivable and recording payment.
Financial Reporting
- Notes receivable are reported as current or noncurrent assets based on their maturity.
- The account "Allowance for Uncollectible Accounts" serves as a contra asset to accounts receivable, typically carrying a credit balance.
Ratios for Assessing Receivables
- The receivables turnover ratio and average collection period are vital metrics that assess a company’s effectiveness in managing receivables.
Direct Write-Off Method
- Used when uncollectible accounts are not anticipated or are immaterial and requires entries to be made only once an account is deemed uncollectible.
Key Insights
- Account receivables are critical for cash flow but pose risks due to potential uncollectibles.
- Credit management strategies, including allowances and discounts, are essential for financial health.
- Regular assessment of accounts receivable and adjustment for uncollectibles boosts accuracy in financial reporting and helps maintain healthy cash flow.
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Description
Test your knowledge on accounts receivable, types of sales, discounts, and collection methods. This quiz covers key concepts related to managing customer payments and enhancing cash flow in a business. Understand how different sales arrangements impact financial statements.
