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Questions and Answers
What was the total amount debited to the accounts receivable in the General Journal on September 5?
What was the total amount debited to the accounts receivable in the General Journal on September 5?
Which entry correctly represents the return of goods bought on account according to the General Journal?
Which entry correctly represents the return of goods bought on account according to the General Journal?
On what date was the entry made for the machine purchased on account?
On what date was the entry made for the machine purchased on account?
Which account was credited in the case of the purchase return on September 21?
Which account was credited in the case of the purchase return on September 21?
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How is a contra account typically used in accounting?
How is a contra account typically used in accounting?
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What was the total credit recorded under Accounts Payable – Fahad Hypermarket after all entries for September?
What was the total credit recorded under Accounts Payable – Fahad Hypermarket after all entries for September?
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What was the value of the cleaning supplies purchased on September 10?
What was the value of the cleaning supplies purchased on September 10?
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What document was associated with the return of goods on September 21?
What document was associated with the return of goods on September 21?
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What is the primary purpose of contra accounts in the balance sheet?
What is the primary purpose of contra accounts in the balance sheet?
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Which account is typically used as a contra account for accounts receivable?
Which account is typically used as a contra account for accounts receivable?
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What does the term 'bad debts' refer to?
What does the term 'bad debts' refer to?
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What distinguishes the direct write-off method from the allowance method?
What distinguishes the direct write-off method from the allowance method?
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What do businesses typically evaluate before granting credit to customers?
What do businesses typically evaluate before granting credit to customers?
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In the balance sheet presentation, where is the amount for allowance for doubtful accounts shown?
In the balance sheet presentation, where is the amount for allowance for doubtful accounts shown?
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What financial impact does bad debts have on a company's accounts receivable?
What financial impact does bad debts have on a company's accounts receivable?
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Which of the following is an indicator that a customer might be a likely bad debt?
Which of the following is an indicator that a customer might be a likely bad debt?
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What is the first step in the allowance method for accounting?
What is the first step in the allowance method for accounting?
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What is the journal entry to record an estimated uncollectible amount of BD 12,000?
What is the journal entry to record an estimated uncollectible amount of BD 12,000?
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How is the Allowance for Doubtful Accounts presented on the balance sheet?
How is the Allowance for Doubtful Accounts presented on the balance sheet?
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Which of the following accounts would be affected by writing off uncollectible accounts?
Which of the following accounts would be affected by writing off uncollectible accounts?
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What does the net account receivable represent?
What does the net account receivable represent?
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Which action is typically taken after all means of collecting a past-due account have been exhausted?
Which action is typically taken after all means of collecting a past-due account have been exhausted?
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What is the effect of recording an estimated uncollectible account on the income statement?
What is the effect of recording an estimated uncollectible account on the income statement?
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Which of these methods is NOT typically used for collecting past-due accounts?
Which of these methods is NOT typically used for collecting past-due accounts?
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What accounts are affected when reversing the write-off of R.A. Ware's account?
What accounts are affected when reversing the write-off of R.A. Ware's account?
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What was recorded when cash was collected from R.A. Ware?
What was recorded when cash was collected from R.A. Ware?
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Which statement is true concerning recoveries of bad debts?
Which statement is true concerning recoveries of bad debts?
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What does the reversal of a bad debt write-off indicate?
What does the reversal of a bad debt write-off indicate?
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What is the primary purpose of an Allowance for Doubtful Accounts?
What is the primary purpose of an Allowance for Doubtful Accounts?
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When is cash considered collected in relation to Accounts Receivable?
When is cash considered collected in relation to Accounts Receivable?
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Which of the following accounts functions as a contra account?
Which of the following accounts functions as a contra account?
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What happens to accounts that are deemed uncollectible?
What happens to accounts that are deemed uncollectible?
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Which of the following is NOT classified as an asset account?
Which of the following is NOT classified as an asset account?
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What is the primary purpose of the chart of accounts?
What is the primary purpose of the chart of accounts?
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Which range of codes typically represents equity accounts in a chart of accounts?
Which range of codes typically represents equity accounts in a chart of accounts?
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Contra-accounts are best described as:
Contra-accounts are best described as:
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Which of the following represents an expense account?
Which of the following represents an expense account?
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If a business has an allowance for bad debts, this is classified under which type of account?
If a business has an allowance for bad debts, this is classified under which type of account?
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Which of the following types of accounts would include capital?
Which of the following types of accounts would include capital?
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What type of account is best described as representing a company's earnings?
What type of account is best described as representing a company's earnings?
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Study Notes
Types of Accounts
- Asset Accounts: Represent economic resources owned or controlled by an entity. Examples include cash, inventory, real estate, prepaid expenses, and accounts receivable.
- Liability Accounts: Reflect economic obligations of an entity, such as accounts payable, loans, and accrued expenses.
- Equity Accounts: Indicate the residual interest in assets after deducting liabilities, including common stock and retained earnings.
- Revenue Accounts: Document the company's earnings from sales and services.
- Expense Accounts: Capture expenditures like utilities, rent, and depreciation.
- Contra-Accounts: Have negative balances that offset other accounts; examples include accumulated depreciation and allowance for bad debts.
Chart of Accounts
- An organized index for classifying individual accounts in the general ledger.
- Typically structured by ranges, such as:
- Assets: 1000-1999
- Liabilities: 2000-2999
- Equity: 3000-3999
- Revenues: 4000-4999
- Expenses: 5000-5999
General Journal Entry Example
- Record transactions in a systematic way, with debits and credits clearly defined.
- Example entries illustrate typical business transactions, such as accounts receivable and accounts payable.
Contra Account Overview
- Used to reduce the value of related accounts; their balances are oppositional to associated accounts.
- Presented in financial statements to provide clearer insights into net values, such as accounts receivable less an allowance for doubtful accounts.
Doubtful Debts
- Bad debts arise when customers default on payments.
- Direct Write-Off Method: Bad debts are recorded as expenses when deemed uncollectible.
- Allowance Method: Estimates uncollectible accounts in advance, creating a reserve account for anticipated losses.
Steps in Allowance Method
- Estimated Uncollectibles: Adjust the accounts receivable to reflect expected losses, recorded as bad debts expense and allowance for doubtful accounts.
- Write-Off Uncollectibles: Formal approval is needed to write off bad debts, adjusting both accounts receivable and allowance accounts.
- Recovery of Uncollectibles: If previously written-off amounts are collected, adjustments are made to reflect the recovery.
Example of Allowance Method
- If accounts receivable total BD 200,000 and estimated uncollectibles are BD 12,000:
- Adjusting entry includes debiting bad debts expense and crediting allowance for doubtful accounts.
- The net accounts receivable presents a more accurate figure after accounting for expected losses.
Collection Efforts for Past-Due Accounts
- Strategies include ensuring invoice delivery, follow-ups, sending reminders, and possibly pursuing legal action.
- Writing off accounts when collection efforts fail is a necessary accounting process that requires management approval.
Key Takeaway
- Understanding and maintaining an accurate chart of accounts, alongside methods for handling uncollectible accounts, is vital for effective financial management and reporting.
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Description
This quiz covers the essentials of establishing and maintaining an accrual accounting system within financial services. It explores various types of accounts, including asset accounts that represent economic resources owned by an entity. Test your knowledge on the classifications and functionalities of these accounts in a company.
