ACCT 201 Smart Book Flashcards
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Questions and 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

At the beginning of the year, Gerta Company's allowance account has a credit balance of $10,000. What does this indicate?

estimate of uncollectible accounts was too high.

When is the direct write-off method used?

uncollectible accounts are not anticipated or are immaterial.

What journal entry does Mark record when he debits Bad Debt Expense and credits Accounts Receivable?

<p>Direct write-off method</p> Signup and view all the answers

How should Raven report a 3-year note receivable from a customer in its financial statements?

<p>As a noncurrent asset</p> Signup and view all the answers

What entry is required on Oak Corp's books on March 5 for the $100,000 note from Pine?

<p>Debit Notes Receivable $100,000; credit Service Revenue $100,000.</p> Signup and view all the answers

Where is a note receivable reported in the balance sheet?

<p>In either current or noncurrent assets, as appropriate.</p> Signup and view all the answers

What is the normal balance of notes receivable?

<p>a debit</p> Signup and view all the answers

What comparative advantages do notes receivables possess compared to other receivables? (Select all that apply.)

<p>Interest-bearing</p> Signup and view all the answers

What is the formula for the receivables turnover ratio?

<p>Dividing your net credit sales by your average accounts receivable.</p> Signup and view all the answers

An ____ is the legal right to receive cash from a credit sale and represents an asset of the company.

<p>accounts receivable</p> Signup and view all the answers

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

<p>Sales on Account</p> Signup and view all the answers

An account receivable is normally classified as?

<p>an asset.</p> Signup and view all the answers

Payment for credit sales are typically due in?

<p>30 to 60 days.</p> Signup and view all the answers

The formula to compute the receivables turnover ratio is net credit sales divided by?

<p>average accounts receivable.</p> Signup and view all the answers

For a typical credit sale, the seller records revenue?

<p>at the point of delivery.</p> Signup and view all the answers

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

<p>accounts receivable.</p> Signup and view all the answers

Trade receivable is another term for?

<p>accounts receivable.</p> Signup and view all the answers

When a business provides services to a customer, and the customer promises to pay later, this is referred to as?

<p>credit sales.</p> Signup and view all the answers

Glasser Corp. provided $20,000 of services on account. The account that should be credited is?

<p>service revenue.</p> Signup and view all the answers

Accounts receivable are normally classified?

<p>in the balance sheet as assets.</p> Signup and view all the answers

Which of the following are classified as receivables?

<p>Interest due from loans to customers</p> Signup and view all the answers

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

<p>All of the above</p> Signup and view all the answers

The two conditions that must exist for a sale and the related receivable to be recognized are?

<p>The company has provided goods or services to the customer.</p> Signup and view all the answers

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

<p>All of the above.</p> Signup and view all the answers

Another term sometimes used for accounts receivable is?

<p>trade receivable.</p> Signup and view all the answers

The list price in Boyton's catalog indicates that Product A sells for $3,000, with a trade discount of 5%. At what amount should Boyton record the sale and related accounts receivable?

<p>2850</p> Signup and view all the answers

Flounder Corp. provided $12,000 of services on account. The entry to record this transaction would include a debit to?

<p>accounts receivable.</p> Signup and view all the answers

Which of the following items are classified as receivables?

<p>All of the Above</p> 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)?

<p>sales return.</p> Signup and view all the answers

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

<p>net revenue.</p> Signup and view all the answers

A trade discount is?

<p>a percentage reduction from list price.</p> Signup and view all the answers

A sales return occurs when?

<p>A customer returns merchandise purchased during the month and receives a refund of the full sales price.</p> Signup and view all the answers

A sales allowance is defined as?

<p>A customer receives a partial refund of the sales price after the customer discovers a flaw in the merchandise.</p> Signup and view all the answers

A trade discount is recognized by?

<p>reducing the revenue amount recorded.</p> Signup and view all the answers

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

<p>decreases; retained.</p> 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. What is the entry Warner will make on April 20 when the goods are returned?

<p>Debit Sales Returns; credit Accounts Receivable.</p> Signup and view all the answers

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

<p>sales return.</p> Signup and view all the answers

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

<p>All of the above</p> Signup and view all the answers

The Sales Returns and Sales Allowances accounts are classified as?

<p>contra revenue accounts.</p> 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?

<p>debit to Sales Allowances $50.</p> Signup and view all the answers

Adrian Corp. sells goods on account for $100,000 on May 1. The customer paid for the goods on May 10. On May 15, the customer returns $40,000 of the merchandise. The entry Adrian makes on May 15 will include the following?

<p>Credit to Sales Revenue</p> 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?

<p>sales discount.</p> 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?

<p>Both A and B</p> Signup and view all the answers

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

<p>contra - revenue</p> Signup and view all the answers

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

<p>Both A and B</p> Signup and view all the answers

Abby Fashions sells a suit to a customer for $600 on account. The day after the sale, 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:

<p>debit to Sales Allowances $60; credit to accounts receivable $60.</p> Signup and view all the answers

Bell provides $500 of services to customers on account with terms 3/10, n/30. The Service Revenue account is credited for $500. If the customer pays within 10 days, Bell will record which of the following?

<p>Debit Sales Discount $15.</p> 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?

<p>sales discount.</p> Signup and view all the answers

The sales discount account is classified as a(n)?

<p>contra revenue account.</p> Signup and view all the answers

Claire provides $100 of services to customers on account with terms 2/10, n/30. The Service Revenue account is credited for $100. If the customer pays within 10 days, Claire will record which of the following?

<p>Credit Accounts Receivable $100; Debit Cash $98; Debit Sales Discount $2.</p> Signup and view all the answers

Fog Corporation sells $5,000 goods on account. Salaries expense was $3,000. Sales returns were $100, and sales discounts were $300. Net sales were?

<p>4,600.</p> Signup and view all the answers

Relay Corporation provides services with a normal price of $105,000 and a trade discount of $5,000. Terms are 1/10, n/30 and the customers pay within 10 days. The net service revenue is?

<p>99,000.</p> Signup and view all the answers

Kim Corporation sells goods to a customer on account for $1,000, terms 2/10, n/30. When the customer pays on the 20th day, Kim will record which of the following?

<p>Debit cash $1,000.</p> Signup and view all the answers

James Corporation sells $1,000 goods on account. Sales returns were $40, and sales allowances were $50. Sales discounts for the period were $30. Net sales are?

<ol start="880"> <li></li> </ol> 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?

<p>allowance method.</p> Signup and view all the answers

Gammy Corporation provides services with a normal price of $800,000 and a trade discount of $100,000. Terms are 2/10, n/30 and the customers pay within 10 days. The net service revenue is?

<p>686,000.</p> Signup and view all the answers

The allowance method estimates?

<p>uncollectible accounts.</p> Signup and view all the answers

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

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

Accounts receivable are typically classified as current assets because?

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

The allowance method is required by?

<p>GAAP.</p> Signup and view all the answers

The journal entry to record bad debt expense includes?

<p>Both A and B</p> Signup and view all the answers

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

<p>future; current.</p> Signup and view all the answers

Recording bad debt expense:

<p>All of the above</p> Signup and view all the answers

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

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

The account 'Allowance for Uncollectible Accounts' is classified as?

<p>a contra asset to accounts receivable.</p> Signup and view all the answers

The difference between total accounts receivable and the allowance for uncollectible accounts is referred to as?

<p>net accounts receivable.</p> 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?

<p>18,000.</p> 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?

<p>allowance for uncollectible accounts.</p> Signup and view all the answers

What are the financial statement effects of recording bad debt expense using the allowance method?

<p>Both A and B</p> Signup and view all the answers

The allowance for uncollectible accounts is a contra account to?

<p>accounts receivable.</p> Signup and view all the answers

The term net accounts receivable refers to?

<p>accounts receivable less the allowance for uncollectible accounts.</p> Signup and view all the answers

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

<p>contra-asset.</p> 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?

<p>93,000.</p> Signup and view all the answers

If the allowance for uncollectible accounts is 25% of year-end accounts receivable, this might indicate?

<p>credit policies are too lenient.</p> 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):

<p>decrease in Accounts Receivable.</p> Signup and view all the answers

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?

<p>debit Allowance for Uncollectible Accounts.</p> Signup and view all the answers

The account 'Allowance for Uncollectible Accounts' normally has a?

<p>credit balance.</p> 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 _____ net income.

<p>not affect.</p> Signup and view all the answers

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

<p>bad debt expense.</p> Signup and view all the answers

The write-off of a specific accounts receivable ______ total assets reported on the balance sheet.

<p>has no effect on.</p> Signup and view all the answers

A high ratio of allowance for uncollectible accounts to total accounts receivable can indicate?

<p>Both A and B</p> Signup and view all the answers

The Accounts Receivable account is reduced when the seller?

<p>determines that a specific customer account will not be collectible.</p> Signup and view all the answers

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

<p>estimated; at the end of the year.</p> Signup and view all the answers

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?

<p>Credit to Accounts Receivable; Debit to Allowance for Uncollectible Accounts.</p> 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?

<p>Debit Accounts Receivable; Credit Allowance for Uncollectible Accounts.</p> Signup and view all the answers

When the allowance method is used, the write-off of an uncollectible account?

<p>has no effect on net income.</p> Signup and view all the answers

Cobalt Corp. uses the allowance method to account for bad debts. If Cobalt writes off an account for $3,000, what is the effect on the balance sheet?

<p>No effect on total assets.</p> 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?

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

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

<p>a balance sheet.</p> Signup and view all the answers

With the allowance method, bad debt expense is recorded?

<p>at the end of the period when bad debts are estimated.</p> 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?

<p>credit to Allowance for Uncollectible Accounts.</p> Signup and view all the answers

For accounts receivable, the longer an account is outstanding,

<p>the more likely it will prove uncollectible.</p> Signup and view all the answers

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

<p>be more accurate.</p> Signup and view all the answers

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 _______.

<p>Cash; Accounts Receivable.</p> Signup and view all the answers

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

<p>a single percentage; accounts receivable.</p> Signup and view all the answers

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

<p>income statement.</p> Signup and view all the answers

An ______ balance before adjustment indicates that the estimate of uncollectible accounts at the beginning of the year may have been too high.

<p>credit.</p> Signup and view all the answers

An aging schedule classifies accounts receivable based on?

<p>length of time outstanding.</p> 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?

<p>estimate of uncollectible accounts was too low.</p> Signup and view all the answers

Study Notes

Receivables Turnover Ratio

  • Receivables turnover ratio = Net credit sales / Average accounts receivable
  • Measures how efficiently a company collects revenue from credit sales.

Accounts Receivable

  • Represents a legal right to receive cash from customers and is classified as an asset on the balance sheet.
  • Trade receivable is another term for accounts receivable.
  • Typically classified as current assets, as they are expected to be converted to cash within one year.

Credit Sales

  • Occur when customers pay within 30 to 60 days.
  • Represent sales on account.

Revenue Recognition

  • Revenue is recorded at the point of delivery when goods or services are provided.
  • Conditions for recognizing a sale include the probability of collection and the delivery of goods/services.

Sales Returns and Allowances

  • Sales return occurs when a customer returns purchased merchandise for a refund.
  • Sales allowance is when a partial refund is issued for a product defect, while the customer retains the merchandise.
  • These accounts are classified as contra revenue accounts.

Discounts and Allowances

  • Trade discounts reduce the list price for various purposes, such as quantity discounts and price adjustments.
  • Cash discounts (sales discounts) decrease the payable amount if early payment is made.

Bad Debt Expense

  • Reflects expected uncollectible accounts and is estimated at the end of the period.
  • Recorded using the allowance method, which creates a contra asset account for uncollectibles.

Allowance for Uncollectible Accounts

  • This account has a credit balance and reduces total accounts receivable reported on the balance sheet.
  • The net accounts receivable balance is obtained by subtracting the allowance for uncollectible accounts from total accounts receivable.

Effects of Uncollectible Accounts and Write-offs

  • Write-offs do not affect total assets when using the allowance method.
  • If a previously written-off account is collected, it requires reinstating accounts receivable and recording payment.

Accounting Methods

  • The aging method estimates uncollectibles based on account age; it is often more accurate than other methods.
  • Direct write-off method records uncollectibles when they become bad, typically for immaterial amounts.

Notes Receivable

  • Notes receivable are recorded as noncurrent assets if they extend beyond one year.
  • They offer a higher likelihood of collectibility and often bear interest compared to other receivables.

Financial Statement Impacts

  • Recording bad debt expense decreases assets and net income while increasing expenses.
  • Allowance adjustments are necessary for proper reporting of expected uncollectibles and maintaining accurate financial statements.

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Test your knowledge of key accounting concepts with these flashcards from ACCT 201. Cover essential terms like receivables turnover ratio and accounts receivable. Perfect for students to reinforce their understanding in a quick and interactive way.

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