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When the direct write-off method is used, an entry for bad debt expense is required
When the direct write-off method is used, an entry for bad debt expense is required
Accounts receivable are typically classified as current assets because
Accounts receivable are typically classified as current assets because
A trade discount is
A trade discount is
The account 'Allowance for Uncollectible Accounts' is classified as
The account 'Allowance for Uncollectible Accounts' is classified 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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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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A(n) ____ ____ is the legal right to receive cash from a credit sale and represents an asset of the company.
A(n) ____ ____ is the legal right to receive cash from a credit sale and represents an asset of the company.
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The allowance method estimates
The allowance method estimates
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The direct write-off method is required for
The direct write-off method is required for
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A trade discount is a reduction from the list price, which is used to: (Select all that apply)
A trade discount is a reduction from the list price, which is used to: (Select all that apply)
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The allowance method is required by ____
The allowance method is required by ____
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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)
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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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The direct write-off method is used when
The direct write-off method is used when
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Receivables not expected to be collected should
Receivables not expected to be collected should
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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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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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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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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?
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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
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Pixie Inc. writes off a specific accounts receivable. If Pixie is using the allowance method, the write-off will _____ net income.
Pixie Inc. writes off a specific accounts receivable. If Pixie is using the allowance method, the write-off will _____ net income.
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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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The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the ____ method of accounts receivables.
The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the ____ method of accounts receivables.
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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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Where is a note receivable reported in the balance sheet?
Where is a note receivable reported in the balance sheet?
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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:
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Sales to customers in which the customers pay within 30 to 60 days are referred to as (Select all that apply.)
Sales to customers in which the customers pay within 30 to 60 days are referred to as (Select all that apply.)
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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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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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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) ____ discount.
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) ____ discount.
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The journal entry to record bad debt expense includes: (Select all that apply.)
The journal entry to record bad debt expense includes: (Select all that apply.)
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What are the financial statement effects of recording bad debt expense using the allowance method?
What are the financial statement effects of recording bad debt expense using the allowance method?
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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
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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 sales discount is recorded by the seller as a ____ ____.
A sales discount is recorded by the seller as a ____ ____.
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On January 18, a company provides services to a customer for $500 and offers the customer terms 2/10, n/30. Which of the following would be recorded when the customer remits payment on January 25?
On January 18, a company provides services to a customer for $500 and offers the customer terms 2/10, n/30. Which of the following would be recorded when the customer remits payment on January 25?
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The entry to record the estimate for uncollectible accounts includes:
The entry to record the estimate for uncollectible accounts includes:
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Schmidt Company's Accounts Receivable balance is $100,000, its adjusted balance in Allowance for Uncollectible Accounts is $4,000, and its bad debt expense is $3,800. The net amount of accounts receivable is:
Schmidt Company's Accounts Receivable balance is $100,000, its adjusted balance in Allowance for Uncollectible Accounts is $4,000, and its bad debt expense is $3,800. The net amount of accounts receivable is:
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If a company uses the allowance method of accounting for uncollectible accounts and writes off a specific account:
If a company uses the allowance method of accounting for uncollectible accounts and writes off a specific account:
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The effect of writing off a specific account receivable is:
The effect of writing off a specific account receivable is:
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On December 31, the Accounts Receivable ending balance is $80,000. Assume that the unadjusted balance of Allowance for Uncollectible Accounts is a CREDIT of $500 and that the company estimates 7% of the accounts receivable will not be collected. The amount of bad debt expense recorded on December 31 will be:
On December 31, the Accounts Receivable ending balance is $80,000. Assume that the unadjusted balance of Allowance for Uncollectible Accounts is a CREDIT of $500 and that the company estimates 7% of the accounts receivable will not be collected. The amount of bad debt expense recorded on December 31 will be:
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On December 31, the Accounts Receivable ending balance is $80,000. Assume that the unadjusted balance of Allowance for Uncollectible Accounts is a DEBIT of $500 and that the company estimates 7% of the accounts receivable will not be collected. The amount of bad debt expense recorded on December 31 will be:
On December 31, the Accounts Receivable ending balance is $80,000. Assume that the unadjusted balance of Allowance for Uncollectible Accounts is a DEBIT of $500 and that the company estimates 7% of the accounts receivable will not be collected. The amount of bad debt expense recorded on December 31 will be:
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Assuming the balance of Allowance for Uncollectible Accounts is $3,000 (credit) before adjustment, which of the following would be recorded in the year-end adjusting entry?
Assuming the balance of Allowance for Uncollectible Accounts is $3,000 (credit) before adjustment, which of the following would be recorded in the year-end adjusting entry?
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Under the direct write-off method, uncollectible accounts are recorded:
Under the direct write-off method, uncollectible accounts are recorded:
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On April 1, 20X1, Nelsen Inc. accepts a $100,000, 8% note. The note receivable and interest are due on March 31, 20X2 (one year later). Assuming Nelson Inc. has a December 31 year-end, on March 31, 20X2, Nelson Inc. will record interest revenue of:
On April 1, 20X1, Nelsen Inc. accepts a $100,000, 8% note. The note receivable and interest are due on March 31, 20X2 (one year later). Assuming Nelson Inc. has a December 31 year-end, on March 31, 20X2, Nelson Inc. will record interest revenue of:
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At the beginning of the year, Dawnetta Fashions has total accounts receivable of $300,000. By the end of the year, Dawnetta reports total credit sales of $1,500,000 and total accounts receivable of $200,000. What is the receivables turnover ratio for Dawnetta Fashions?
At the beginning of the year, Dawnetta Fashions has total accounts receivable of $300,000. By the end of the year, Dawnetta reports total credit sales of $1,500,000 and total accounts receivable of $200,000. What is the receivables turnover ratio for Dawnetta Fashions?
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Accounts receivable are best described as
Accounts receivable are best described as
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On March 17, Fox Lumber sells materials to Whitney Construction for $12,000, terms 2/10, n/30. Whitney pays for the materials on March 23. What is the amount of net revenues (sales minus sales discounts) as of March 23?
On March 17, Fox Lumber sells materials to Whitney Construction for $12,000, terms 2/10, n/30. Whitney pays for the materials on March 23. What is the amount of net revenues (sales minus sales discounts) as of March 23?
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Using the allowance method, the entry to record a write-off of accounts receivable will include:
Using the allowance method, the entry to record a write-off of accounts receivable will include:
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Study Notes
Bad Debt Accounting and Methods
- The direct write-off method records bad debt expense when an account receivable is confirmed as uncollectible.
- The allowance method anticipates bad debts and estimates uncollectible accounts, impacting financial statements in the current year.
- Recording bad debt expense affects assets by decreasing total receivables and increases expenses.
Accounts Receivable and Classification
- Accounts receivable are classified as current assets since they convert to cash typically within one year.
- The term 'accounts receivable' refers to the legal right to receive cash from credit sales, representing an asset.
Discounts and Allowances
- A trade discount is a percentage reduction from list price used to incentivize early payment or offer quantity discounts.
- Sales allowances decrease the amount owed when goods are retained after a customer returns them.
Financial Reporting and Accounting Practices
- The allowance for uncollectible accounts functions as a contra asset account to accounts receivable, reducing total assets on the balance sheet.
- Under the allowance method, uncollectible amounts are estimated, while the direct write-off method is required for income tax purposes.
- Bad debt expense is recorded as a debit to Bad Debt Expense and credit to Allowance for Uncollectible Accounts.
Aging Method and Ratio Analysis
- The aging method of accounts receivable evaluates the age of account balances to estimate uncollectible amounts.
- Key ratios for assessing accounts receivable management include the receivable turnover ratio and average collection period.
Treatment of Write-offs
- Writing off specific accounts does not alter net accounts receivable under the allowance method.
- Upon collection of previously written-off accounts, entries must reinstate the account and record the cash collection.
Note Receivables and Assets
- Notes receivable can be classified as either current or noncurrent assets, depending on maturity.
- Cash discounts for early payments are categorized as sales discounts and recorded as contra revenue.
Important Calculations and Changes
- Bad debt expense can significantly affect financials; for example, an estimated uncollectible percentage of AR can change the expense reported.
- On writing off accounts, the allowance account is reduced, reflecting the non-collectibility of the receivable.
- The net accounts receivable is calculated by deducting the allowance for uncollectible accounts from total receivables.
Final Notes
- Accounts not expected to be collected should be excluded from asset calculations.
- Sales discounts can provide financial benefits for cash sales made within specified periods.
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Description
This quiz covers the accounting methods used for bad debts, including the direct write-off and allowance methods. It explores the classification of accounts receivable, discounts, and allowances, along with their impacts on financial reporting. Test your knowledge on these key accounting concepts to ensure a solid understanding of financial practices.
