Accounts Receivable Overview and Revenue Calculations

Questions and Answers

What is the entry required on Oak's books on March 5 for the $100,000, 8%, 6-month interest-bearing note?

Debit Service Revenue $100,000; credit Cash $100,000

Debit Service Revenue $100,000; credit Notes Receivable $100,000

Debit Cash $100,000; credit Notes Receivable $100,000

Debit Notes Receivable $100,000; credit Service Revenue $100,000 (correct)

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 .

collection period

What must a calendar-year-end company accrue on December 31 after accepting a 3-month interest-bearing note on December 1?

interest Signup and view all the answers

Using a percentage of each period's net credit sales to estimate bad debt expense is a(n) approach.

income statement Signup and view all the answers

What are the two important ratios that help understand a company's effectiveness in managing receivables?

receivables turnover ratio, average collection period Signup and view all the answers

What does the receivables turnover ratio indicate?

the number of times during a year that the average accounts receivables were collected Signup and view all the answers

The amount of net credit sales is reported on the .

income statement Signup and view all the answers

What is the average collection period an estimate of?

the number of days the average account receivable balance is outstanding Signup and view all the answers

The income statement approach for estimating bad debts uses a percentage of what?

credit sales Signup and view all the answers

What is the legal right to receive cash from a credit sale called?

account receivable Signup and view all the answers

Sales to customers in which the customers pay within 30 to 60 days are referred to as:

Sales on account Signup and view all the answers

How are accounts receivable normally classified in the balance sheet?

as assets Signup and view all the answers

Net revenues is calculated as total revenues minus which of the following items?

All of the above Signup and view all the answers

A trade discount is a reduction from the list price, which is used to:

All of the above Signup and view all the answers

What is the amount of cash owed to a company by its customers from the sale of goods or services referred to as?

accounts receivable Signup and view all the answers

When a customer returns a product for a refund, in which account is the entry recorded?

sales return Signup and view all the answers

What do we call a sale when a business provides services to a customer, and the customer promises to pay later?

credit sales Signup and view all the answers

An account receivable is normally classified as?

an asset Signup and view all the answers

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.

allowance Signup and view all the answers

Total revenues less discounts, returns, and allowances are referred to as ______.

net Signup and view all the answers

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?

sales allowance Signup and view all the answers

A trade discount is

a reduction from list price Signup and view all the answers

When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n)

sales return Signup and view all the answers

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?

Both A and B Signup and view all the answers

Sales Returns and Sales Allowances are ______ accounts and require a debit entry to increase the account.

contra revenue Signup and view all the answers

Match each description with the correct term.

Sales return = A customer returns merchandise purchased during the month and receives a refund of the full sales price Sales allowance = A customer receives a partial refund of the sales price after discovering a flaw in the merchandise. The customer keeps the merchandise. Signup and view all the answers

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:

Both A and B Signup and view all the answers

A sales allowance the amount owed by the customer for merchandise that is by the customer.

decreases; retained Signup and view all the answers

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:

All of the above Signup and view all the answers

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?

Debit Sales Returns; credit Accounts Receivable. Signup and view all the answers

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)

sales discount Signup and view all the answers

The Sales Returns and Sales Allowances accounts are classified as

contra revenue accounts Signup and view all the answers

A company makes a sale on terms 2/10, n/30. What does this mean?

Both A and B Signup and view all the answers

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:

Debit to Sales Allowances $50 Signup and view all the answers

The financial statement effects of recording an allowance for estimated sales returns are that:

All of the above Signup and view all the answers

Accounts receivable are typically classified as current assets because

they will be converted to cash within 1 year. Signup and view all the answers

A company that expects that some of its customers will not pay the agreed upon sales price must utilize the

allowance method Signup and view all the answers

Which of the following is a discount in the amount to be paid if the customer pays within a specified time period?

sales discount Signup and view all the answers

The allowance method estimates

uncollectible accounts Signup and view all the answers

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

$980 Signup and view all the answers

Accounts receivable not expected to be collected should be counted in the assets of the company until they are later written off.

False Signup and view all the answers

Accounts receivable should be classified as a(n)

asset Signup and view all the answers

The journal entry to record bad debt expense includes:

Both A and B Signup and view all the answers

The allowance method is required by?

GAAP Signup and view all the answers

The account 'Allowance for Uncollectible Accounts' is classified as

a contra asset to accounts receivable Signup and view all the answers

Under the allowance method, companies estimate uncollectible amounts and report those estimates in the year.

future; current Signup and view all the answers

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?

$93,000 Signup and view all the answers

Allowance for Uncollectible Accounts has a credit balance because it is a(n)

contra-asset Signup and view all the answers

Receivables not expected to be collected should be counted in the assets of the company.

False Signup and view all the answers

The estimated expense for accounts that may not be collected is referred to as

bad debt expense Signup and view all the answers

To record an estimate for future bad debts at the end of the period, an adjustment would be made with a credit to

allowance for uncollectible accounts Signup and view all the answers

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)

decrease in Accounts Receivable Signup and view all the answers

The allowance for uncollectible accounts is a contra account to

accounts receivable Signup and view all the answers

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?

$18,000 Signup and view all the answers

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?

Both A and B Signup and view all the answers

The account 'Allowance for Uncollectible Accounts' normally has a balance.

credit Signup and view all the answers

When the allowance method is used, the write-off of an uncollectible account has no effect on net income.

True Signup and view all the answers

The cost of estimated accounts receivable that will not be collected is referred to as

bad debt expense Signup and view all the answers

With the allowance method, bad debt expense is recorded

at the end of the period when bad debts are estimated Signup and view all the answers

The Accounts Receivable account is reduced when the seller:

determines that a specific customer account will not be collectible Signup and view all the answers

(Face value x annual interest rate x fraction of the annual period) is the formula for:

interest on a note Signup and view all the answers

Shannon determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account will include:

debit Allowance for Uncollectible Accounts. Signup and view all the answers

Pixie Inc writes off a specific accounts receivable. If Pixie is using the allowance method, the write off will not affect net income.

True Signup and view all the answers

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?

60.8 days Signup and view all the answers

Gwendolyn uses the allowance method to account for uncollectible receivables. Gwendolyn should record bad debt expense .

estimated; at the end of the year Signup and view all the answers

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?

An entry to reinstate the account receivable and an entry to record payment. Signup and view all the answers

The formula for calculating interest on a note is

face value x annual rate x fraction of the annual period Signup and view all the answers

When an account previously written off is collected in full, the entry to reverse the previous write-off would require which of the following?

Both A and B Signup and view all the answers

The percentage-of-receivables approach to measuring bad debt expense is referred to as ______ method.

a balance sheet Signup and view all the answers

An aging schedule classifies accounts receivable based on

length of time outstanding Signup and view all the answers

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?

40.6 days Signup and view all the answers

Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to

be more accurate Signup and view all the answers

Two entries are required when a previously written off account is collected. These two entries include:

reinstate the account receivable and record the collection on the account receivable Signup and view all the answers

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?

$4,800 Signup and view all the answers

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

credit to Allowance for Uncollectible Accounts Signup and view all the answers

Bad debt expense is reported on the:

income statement Signup and view all the answers

The percentage-of-receivables method of estimating bad debt applies to .

a single percentage; accounts receivable Signup and view all the answers

A(n) balance before adjustment indicates that the estimate of uncollectible accounts at the beginning of the year may have been too high.

credit Signup and view all the answers

For accounts receivable, the longer an account is outstanding,

the more likely it will prove uncollectible Signup and view all the answers

At the beginning of the year, Blocker Company's allowance account has a debit balance of $10,000. This may indicate that the

estimate of uncollectible accounts was too low. Signup and view all the answers

The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the method of accounts receivable.

aging Signup and view all the answers

The direct write-off method is required for

income tax purposes. Signup and view all the answers

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?

$5,400 Signup and view all the answers

A formal credit arrangement between a creditor and debtor is called a(n)

note receivable Signup and view all the answers

Bad debt expense is reported on the ______ and is classified as an operating expense.

income statement Signup and view all the answers

Where is a note receivable reported in the balance sheet?

In either current or noncurrent assets, as appropriate Signup and view all the answers

At the beginning of the year, Gerta Company's allowance account has a credit balance of $10,000. This may indicate that the

estimate of uncollectible accounts was too high Signup and view all the answers

Notes receivable normally has a(n) ______ balance because it is classified as a(n).

debit; asset Signup and view all the answers

A(n) balance before adjustment indicates that the estimate of uncollectible accounts at the beginning of the year may have been too low.

debit Signup and view all the answers

The direct write-off method is used when

uncollectible accounts are not anticipated or are immaterial Signup and view all the answers

A(n) receivable typically yields interest revenue and possesses a fairly high probability of collectibility.

notes Signup and view all the answers

A formal, signed credit agreement between a lender and a borrower is called a(n)

note receivable Signup and view all the answers

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

debit to Notes Receivable, $40,000 Signup and view all the answers

Raven receives a 3-year note receivable from a customer for goods sold. How should Raven report this note receivable in its financial statements?

As a noncurrent asset Signup and view all the answers

The normal balance of notes receivable is:

a debit Signup and view all the answers

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?

Make an adjusting entry at the end of the current period to accrue the interest earned. Signup and view all the answers

The receivables turnover ratio and the average collection period provide information about a company's

effectiveness in managing receivables Signup and view all the answers

What comparative advantages do notes receivables possess compared to other receivables?

Both A and B Signup and view all the answers

The ratio shows the number of times during a year that the average receivable balance is collected.

receivables turnover Signup and view all the answers

On March 5, Oak Corp provided services on account to Pine.

Signup and view all the answers

Study Notes