Questions and Answers
When merchandise is returned for a refund or for credit to be applied to other purchases, this situation is called a _____________________________
Sales Return
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 is referred to as ___________________________
Sales Allowance
A sales allowance __________ the amount owed by the customer for merchandise that is ______ by the customer.
decreases, retained
Gross accounts receivable less allowance for doubtful accounts is the __________ ______________________ of accounts receivable.
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Recording an adjustment at the end of each period to allow for the possibility of future uncollectible debt is referred to as the ________________________ under US GAAP.
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The amount of adjustment to the allowance for uncollectible accounts is referred to as ____________________________.
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The allowance method estimates _______________________
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Accounts receivable are classified as current assets because they are a formal agreement to pay within a specific period of time.
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Accounts receivable are classified as current assets because they will be converted to cash within 1 year or the normal operating cycle.
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Accounts receivable are classified as current assets because they are matched with accounts payable for the period.
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Accounts receivable are classified as current assets because they accrue interest at a specified interest rate.
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The method of estimating uncollectible accounts based on the percentage of accounts receivable expected not to be collected is referred to as the _________________________
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The Percentage-of-Receivables approach to measuring bad debt expense focuses on matching net credit sales with the appropriate percentage expected to be uncollectable.
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The Percentage-of-Receivables approach to measuring bad debt expense focuses on the ratio of accounts receivables to sales.
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The Percentage-of-Receivables approach to measuring bad debt expense focuses on cash flows from sales.
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The Percentage-of-Receivables approach to measuring bad debt expense focuses on net realizable value of accounts receivable.
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To record bad debts at the end of the period, an adjustment would be made by a credit to _______________.
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Adjusting for estimates of future uncollectible accounts matches ____________ in the same period as the _________ they help to generate.
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What type of account is Allowance for Uncollectible Accounts?
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Accounts receivable are normally classified in the income statement as revenue.
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Accounts receivable are normally classified in the income statement as other income.
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Accounts receivable are normally classified in the balance sheet as noncurrent assets.
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Accounts receivable are normally classified in the balance sheet as current assets.
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The account 'allowance for uncollectible accounts' normally has a ________ balance.
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Study Notes
Sales Returns and Allowances
- Sales returns occur when merchandise is returned for refund or credit.
- Sales allowance is a partial reduction of the owed amount for goods that didn't meet expectations but weren't returned.
- Sales allowances decrease the amount owed for retained merchandise.
Valuation of Accounts Receivable
- Net realizable value is calculated by subtracting the allowance for doubtful accounts from gross accounts receivable.
- The allowance method involves periodic adjustments to account for potential uncollectible debts as per US GAAP.
- Bad debt expense reflects the adjustment amount for uncollectible accounts.
Estimating Uncollectible Accounts
- The allowance method estimates accounts that are expected to be uncollectible.
- The percentage-of-receivables method determines uncollectible accounts by calculating a percentage of total receivables.
Classification of Accounts Receivable
- Accounts receivable are current assets, as they are expected to convert into cash within one year or during the normal operating cycle.
- Accounts receivable are misclassified as revenue or as noncurrent assets; they should be recorded as current assets.
Accounting Treatments and Principles
- The allowance for uncollectible accounts is credited to record bad debts.
- Matching principle requires expenses like bad debt to be recognized in the same period as the revenues generated.
- Allowance for uncollectible accounts is classified as a contra asset account, typically having a credit balance.
True/False Assertions
- Accounts receivable can be classified based on statements about their characteristics, including their classification as current assets, their correlation with accounts payable, and whether they accrue interest.
- The focus of the percentage-of-receivables method is on estimating uncollectible accounts based on net realizable value, not on sales or cash flows.
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Description
Test your knowledge on key terms from ACT Chapter 5 covering Receivables and Sales. This quiz focuses on definitions such as Sales Return and Sales Allowance, helping you understand important concepts in accounting. Prepare to reinforce your learning with these flashcards.
