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What is the entry required on Oak's books on March 5 for the $100,000, 8%, 6-month interest-bearing note?
What is the entry required on Oak's books on March 5 for the $100,000, 8%, 6-month interest-bearing note?
What does 'net credit sales' refer to?
What does 'net credit sales' refer to?
credit sales net of allowances, discounts, returns
The ratio that shows the approximate number of days the average accounts receivable balance is outstanding is referred to as the ______ ______.
The ratio that shows the approximate number of days the average accounts receivable balance is outstanding is referred to as the ______ ______.
collection period
What must a calendar-year-end company accrue on December 31 after accepting a 3-month interest-bearing note on December 1?
What must a calendar-year-end company accrue on December 31 after accepting a 3-month interest-bearing note on December 1?
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Using a percentage of each period's net credit sales to estimate bad debt expense is a(n) ______ ______ approach.
Using a percentage of each period's net credit sales to estimate bad debt expense is a(n) ______ ______ approach.
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What are the two important ratios that help understand a company's effectiveness in managing receivables?
What are the two important ratios that help understand a company's effectiveness in managing receivables?
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What does the receivables turnover ratio indicate?
What does the receivables turnover ratio indicate?
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The amount of net credit sales is reported on the ______ ______.
The amount of net credit sales is reported on the ______ ______.
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What is the average collection period an estimate of?
What is the average collection period an estimate of?
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The income statement approach for estimating bad debts uses a percentage of what?
The income statement approach for estimating bad debts uses a percentage of what?
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What is the legal right to receive cash from a credit sale called?
What is the legal right to receive cash from a credit sale called?
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Sales to customers in which the customers pay within 30 to 60 days are referred to as:
Sales to customers in which the customers pay within 30 to 60 days are referred to as:
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How are accounts receivable normally classified in the balance sheet?
How are accounts receivable normally classified in the balance sheet?
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Net revenues is calculated as total revenues minus which of the following items?
Net revenues is calculated as total revenues minus which of the following items?
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A trade discount is a reduction from the list price, which is used to:
A trade discount is a reduction from the list price, which is used to:
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What is the amount of cash owed to a company by its customers from the sale of goods or services referred to as?
What is the amount of cash owed to a company by its customers from the sale of goods or services referred to as?
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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?
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What do we call a sale when a business provides services to a customer, and the customer promises to pay later?
What do we call a sale when a business provides services to a customer, and the customer promises to pay later?
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An account receivable is normally classified as?
An account receivable is normally classified as?
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A sales return occurs when a customer returns a product for a full refund, whereas a sales _____ is when the customer keeps the product and obtains a partial refund.
A sales return occurs when a customer returns a product for a full refund, whereas a sales _____ is when the customer keeps the product and obtains a partial refund.
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Total revenues less discounts, returns, and allowances are referred to as ______.
Total revenues less discounts, returns, and allowances are referred to as ______.
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What is the term for a partial adjustment to the amount owed by the customer for goods that were not returned, but did not fully meet the customer's expectations?
What is the term for a partial adjustment to the amount owed by the customer for goods that were not returned, but did not fully meet the customer's expectations?
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A trade discount is
A trade discount is
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When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n)
When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n)
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Adrian Corp sells goods on account for $100,000 on May 1. On May 15, the customer returns $40,000 of the merchandise. The customer has not yet paid for any of the goods. What will Adrian record on May 15?
Adrian Corp sells goods on account for $100,000 on May 1. On May 15, the customer returns $40,000 of the merchandise. The customer has not yet paid for any of the goods. What will Adrian record on May 15?
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Sales Returns and Sales Allowances are ______ accounts and require a debit entry to increase the account.
Sales Returns and Sales Allowances are ______ accounts and require a debit entry to increase the account.
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Match each description with the correct term.
Match each description with the correct term.
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Abby Fashions sells a suit to a customer for $600 on account. The next day, the customer discovers that the jacket has a small stain on the back. Abby Fashions grants the customer a $60 credit. Abby Fashions will record:
Abby Fashions sells a suit to a customer for $600 on account. The next day, the customer discovers that the jacket has a small stain on the back. Abby Fashions grants the customer a $60 credit. Abby Fashions will record:
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A sales allowance ______ the amount owed by the customer for merchandise that is ______ by the customer.
A sales allowance ______ the amount owed by the customer for merchandise that is ______ by the customer.
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York Inc records a year-end adjustment for estimated sales returns and allowances. As a result of this entry, York's financial statements will change as follows:
York Inc records a year-end adjustment for estimated sales returns and allowances. As a result of this entry, York's financial statements will change as follows:
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Warner Corp sells goods on account for $10,000 on April 2. On April 20, the customer returns $3,000 of the merchandise. The customer has not yet paid for any of the goods. What is the entry Warner will make on April 20 when the goods are returned?
Warner Corp sells goods on account for $10,000 on April 2. On April 20, the customer returns $3,000 of the merchandise. The customer has not yet paid for any of the goods. What is the entry Warner will make on April 20 when the goods are returned?
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A cash discount representing a reduction in the amount to be paid by a credit customer if the customer pays within a specified period of time is also referred to as a(n)
A cash discount representing a reduction in the amount to be paid by a credit customer if the customer pays within a specified period of time is also referred to as a(n)
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The Sales Returns and Sales Allowances accounts are classified as
The Sales Returns and Sales Allowances accounts are classified as
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A company makes a sale on terms 2/10, n/30. What does this mean?
A company makes a sale on terms 2/10, n/30. What does this mean?
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Kilroy Corporation provides services to a customer for $1,000. The customer complained that there was a slight defect in the service. Kilroy granted the customer a $50 credit. Kilroy will record this adjustment to the sales price with a:
Kilroy Corporation provides services to a customer for $1,000. The customer complained that there was a slight defect in the service. Kilroy granted the customer a $50 credit. Kilroy will record this adjustment to the sales price with a:
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The financial statement effects of recording an allowance for estimated sales returns are that:
The financial statement effects of recording an allowance for estimated sales returns are that:
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Accounts receivable are typically classified as current assets because
Accounts receivable are typically classified as current assets because
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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
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Which of the following is a discount in the amount to be paid if the customer pays within a specified time period?
Which of the following is a discount in the amount to be paid if the customer pays within a specified time period?
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The allowance method estimates
The allowance method estimates
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Pine Corporation provides $1,000 of services on account with terms 2/10, n/30. If the customer takes the discount and pays within 10 days, Pine will receive
Pine Corporation provides $1,000 of services on account with terms 2/10, n/30. If the customer takes the discount and pays within 10 days, Pine will receive
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Accounts receivable not expected to be collected should be counted in the assets of the company until they are later written off.
Accounts receivable not expected to be collected should be counted in the assets of the company until they are later written off.
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Accounts receivable should be classified as a(n)
Accounts receivable should be classified as a(n)
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The journal entry to record bad debt expense includes:
The journal entry to record bad debt expense includes:
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The allowance method is required by?
The allowance method is required by?
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The account 'Allowance for Uncollectible Accounts' is classified as
The account 'Allowance for Uncollectible Accounts' is classified as
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Under the allowance method, companies estimate ______ uncollectible amounts and report those estimates in the ______ year.
Under the allowance method, companies estimate ______ uncollectible amounts and report those estimates in the ______ year.
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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?
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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)
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Receivables not expected to be collected should be counted in the assets of the company.
Receivables not expected to be collected should be counted in the assets of the company.
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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
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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
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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)
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The allowance for uncollectible accounts is a contra account to
The allowance for uncollectible accounts is a contra account to
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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?
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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 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?
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The account 'Allowance for Uncollectible Accounts' normally has a balance.
The account 'Allowance for Uncollectible Accounts' normally has a balance.
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When the allowance method is used, the write-off of an uncollectible account has no effect on net income.
When the allowance method is used, the write-off of an uncollectible account has no effect on net income.
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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
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With the allowance method, bad debt expense is recorded
With the allowance method, bad debt expense is recorded
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The Accounts Receivable account is reduced when the seller:
The Accounts Receivable account is reduced when the seller:
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(Face value x annual interest rate x fraction of the annual period) is the formula for:
(Face value x annual interest rate x fraction of the annual period) is the formula for:
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Shannon determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account will include:
Shannon determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account will include:
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Pixie Inc writes off a specific accounts receivable. If Pixie is using the allowance method, the write off will not affect net income.
Pixie Inc writes off a specific accounts receivable. If Pixie is using the allowance method, the write off will not affect net income.
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Black Company has the following information: Receivable turnover 6, Inventory turnover 5, Asset turnover 3, Net credit sales $500,000. What is the average collection period?
Black Company has the following information: Receivable turnover 6, Inventory turnover 5, Asset turnover 3, Net credit sales $500,000. What is the average collection period?
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Gwendolyn uses the allowance method to account for uncollectible receivables. Gwendolyn should record ______ bad debt expense ______.
Gwendolyn uses the allowance method to account for uncollectible receivables. Gwendolyn should record ______ bad debt expense ______.
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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?
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The formula for calculating interest on a note is
The formula for calculating interest on a note is
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When an account previously written off is collected in full, the entry to reverse the previous write-off would require which of the following?
When an account previously written off is collected in full, the entry to reverse the previous write-off would require which of the following?
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The percentage-of-receivables approach to measuring bad debt expense is referred to as ______ method.
The percentage-of-receivables approach to measuring bad debt expense is referred to as ______ method.
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An aging schedule classifies accounts receivable based on
An aging schedule classifies accounts receivable based on
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Green Company has net credit sales of $100,000, an asset turnover ratio of 4, and a receivables turnover ratio of 9. What is the average collection period?
Green Company has net credit sales of $100,000, an asset turnover ratio of 4, and a receivables turnover ratio of 9. What is the average collection period?
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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
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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:
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Below is a schedule of accounts receivable. Using the aging method, determine the ending balance in the allowance for uncollectible accounts. Length of Time Outstanding / Accounts Receivable Balance / Percentage Estimated Uncollectible. 0-30 days / $100,000 / 1%; 31-60 days / $60,000 / 2%; 61-90 days / $20,000 / 3%; Over 90 days / $50,000 / 4%. What is the allowance for uncollectible accounts?
Below is a schedule of accounts receivable. Using the aging method, determine the ending balance in the allowance for uncollectible accounts. Length of Time Outstanding / Accounts Receivable Balance / Percentage Estimated Uncollectible. 0-30 days / $100,000 / 1%; 31-60 days / $60,000 / 2%; 61-90 days / $20,000 / 3%; Over 90 days / $50,000 / 4%. What is the allowance for uncollectible accounts?
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Planters Corp wrote off a customer's uncollectible account in April. In the following month, Planters collected from the customer in full. The entry to reinstate the account would require a
Planters Corp wrote off a customer's uncollectible account in April. In the following month, Planters collected from the customer in full. The entry to reinstate the account would require a
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Bad debt expense is reported on the:
Bad debt expense is reported on the:
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The percentage-of-receivables method of estimating bad debt applies ______ to ______.
The percentage-of-receivables method of estimating bad debt applies ______ to ______.
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A(n) balance before adjustment indicates that the estimate of uncollectible accounts at the beginning of the year may have been too high.
A(n) balance before adjustment indicates that the estimate of uncollectible accounts at the beginning of the year may have been too high.
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For accounts receivable, the longer an account is outstanding,
For accounts receivable, the longer an account is outstanding,
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At the beginning of the year, Blocker Company's allowance account has a debit balance of $10,000. This may indicate that the
At the beginning of the year, Blocker Company's allowance account has a debit balance of $10,000. This may indicate that the
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The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the method of accounts receivable.
The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the method of accounts receivable.
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The direct write-off method is required for
The direct write-off method is required for
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Below is a schedule of accounts receivable. Using the aging method, determine the ending balance in the allowance for uncollectible accounts. Length of time outstanding: 0-30 days / 31-60 days / 61-90 days / Over 90 days. Accounts receivable balance: $200,000 / $100,000 / $50,000 / $40,000. Percentage estimated uncollectible: 0.5% / 1% / 2% / 6%. What is the allowance for uncollectible accounts?
Below is a schedule of accounts receivable. Using the aging method, determine the ending balance in the allowance for uncollectible accounts. Length of time outstanding: 0-30 days / 31-60 days / 61-90 days / Over 90 days. Accounts receivable balance: $200,000 / $100,000 / $50,000 / $40,000. Percentage estimated uncollectible: 0.5% / 1% / 2% / 6%. What is the allowance for uncollectible accounts?
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A formal credit arrangement between a creditor and debtor is called a(n)
A formal credit arrangement between a creditor and debtor is called a(n)
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Bad debt expense is reported on the ______ and is classified as an operating expense.
Bad debt expense is reported on the ______ and is classified as an operating expense.
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Where is a note receivable reported in the balance sheet?
Where is a note receivable reported in the balance sheet?
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At the beginning of the year, Gerta Company's allowance account has a credit balance of $10,000. This may indicate that the
At the beginning of the year, Gerta Company's allowance account has a credit balance of $10,000. This may indicate that the
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Notes receivable normally has a(n) ______ balance because it is classified as a(n).
Notes receivable normally has a(n) ______ balance because it is classified as a(n).
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A(n) balance before adjustment indicates that the estimate of uncollectible accounts at the beginning of the year may have been too low.
A(n) balance before adjustment indicates that the estimate of uncollectible accounts at the beginning of the year may have been too low.
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The direct write-off method is used when
The direct write-off method is used when
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A(n) receivable typically yields interest revenue and possesses a fairly high probability of collectibility.
A(n) receivable typically yields interest revenue and possesses a fairly high probability of collectibility.
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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)
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On June 1, Tulip Corp provided services on account to Daffodil. Tulip agreed to accept a $40,000, 10%, 3-month interest-bearing note from Daffodil in payment for the services. The entry required on Tulip's books on June 1 would include a
On June 1, Tulip Corp provided services on account to Daffodil. Tulip agreed to accept a $40,000, 10%, 3-month interest-bearing note from Daffodil in payment for the services. The entry required on Tulip's books on June 1 would include a
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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?
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The normal balance of notes receivable is:
The normal balance of notes receivable is:
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When a company has earned interest in the current period but has not yet recorded the interest, what type of adjustment is the company required to make?
When a company has earned interest in the current period but has not yet recorded the interest, what type of adjustment is the company required to make?
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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
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What comparative advantages do notes receivables possess compared to other receivables?
What comparative advantages do notes receivables possess compared to other receivables?
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The ratio shows the number of times during a year that the average receivable balance is collected.
The ratio shows the number of times during a year that the average receivable balance is collected.
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On March 5, Oak Corp provided services on account to Pine.
On March 5, Oak Corp provided services on account to Pine.
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Study Notes
Accounts Receivable Overview
- Accounts receivable represents the legal right to receive cash from credit sales, categorized as an asset on the balance sheet.
- Sales on account and credit sales are terms used for transactions where customers pay within 30 to 60 days.
Revenue Calculations
- Net revenues is determined by subtracting sales discounts, returns, and allowances from total revenues.
- Sales returns occur when a customer returns a product for a full refund, while a sales allowance is a partial refund for unsatisfactory goods that the customer retains.
Discounts and Allowances
- Trade discounts are reductions from list prices given for quantity purchases or to conceal actual prices from competitors.
- Cash discounts, also known as sales discounts, reduce the total amount payable by customers who settle debts promptly.
Financial Statement Impacts
- Discounted cash received within specific time frames offers benefits; terms like 2/10, n/30 allow customers to take 2% off if paid within 10 days.
- Year-end adjustments for estimated sales returns decrease equity and total assets.
Bad Debt and Write-Offs
- The allowance method is essential for estimating uncollectible accounts, ensuring accounts not expected to be collected are excluded from assets.
- When writing off uncollectible accounts, entries involve debiting the allowance for uncollectible accounts and crediting accounts receivable.
Estimating Bad Debts
- Bad debt expense represents estimated uncollectible accounts and must be estimated annually.
- The aging schedule helps in estimating uncollectibles based on how long accounts have been outstanding, typically leading to more accurate estimates.
Receivables Management
- The receivables turnover ratio and average collection period assess how effectively a company manages its receivables.
- A higher receivables turnover suggests efficient collection practices, while a longer collection period indicates potential cash flow issues.
Notes Receivable
- Notes receivable are interest-bearing and typically represent a higher probability of collectibility compared to standard receivables.
- Entries for notes receivable on the balance sheet are classified as either current or noncurrent assets based on their due date.
Reporting and Adjustments
- Bad debt expenses are recorded on the income statement and require adjustments at the end of the period to reflect any interest earned on notes receivable.
- The percentage-of-receivables method applies a single percentage to total accounts receivable for estimating uncollectibles.
Summary of Important Concepts
- Contra asset accounts, such as the allowance for uncollectible accounts, represent reductions from total receivables.
- The direct write-off method is an alternative for accounting for uncollectible accounts when they are not anticipated or are trivial.
- Accurate accounting practices for accounts receivable are vital for financial health, impacting liquidity and profitability metrics.
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Description
This quiz covers the essential concepts of accounts receivable, revenue calculations, and the impact of discounts and allowances on financial statements. Test your understanding of how these components affect cash flow and business operations. Perfect for students of accounting or finance.
