Deck 16: Accounting for Accounts Receivable

Question 1

Match the terms with the definitions.a.accounts receivable turnover
b.average collection period
c.reversing entry
d.return on owner's equity
e.current assets
f.current liabilities
g.current ratio
h.post-closing trial balance
i.Mortgage Payable
j.income from operations
k.interstatement analysis
l.mortgage
m.long-term liabilities
When it is possible to make a reasonable estimate of the amount of uncollectible accounts, the allowance method is preferred for financial reporting purposes.

Answer 1

True

Question 2

Match the terms with the definitions.a.accounts receivable turnover
b.average collection period
c.reversing entry
d.return on owner's equity
e.current assets
f.current liabilities
g.current ratio
h.post-closing trial balance
i.Mortgage Payable
j.income from operations
k.interstatement analysis
l.mortgage
m.long-term liabilities
The expense of extending credit to make a sale should be recognized in the same period as the revenue from the sale.

Answer 2

True

Question 3

Match the terms with the definitions.a.accounts receivable turnover
b.average collection period
c.reversing entry
d.return on owner's equity
e.current assets
f.current liabilities
g.current ratio
h.post-closing trial balance
i.Mortgage Payable
j.income from operations
k.interstatement analysis
l.mortgage
m.long-term liabilities
The matching concept states that expenses incurred to produce particular revenues should be matched with those revenues.

Answer 3

True

Question 4

Match the terms with the definitions.a.accounts receivable turnover
b.average collection period
c.reversing entry
d.return on owner's equity
e.current assets
f.current liabilities
g.current ratio
h.post-closing trial balance
i.Mortgage Payable
j.income from operations
k.interstatement analysis
l.mortgage
m.long-term liabilities
The credit portion of an adjusting entry to enter the estimate for uncollectible accounts can be made directly to a specific receivable account.

Question 5

Under the percentage of receivables method, the adjusting entry at the end of the period for bad debt expense is not affected by the current balance in the allowance for bad debts account.

Question 6

Whenever a company elects to make sales on account, it is inevitable that some receivables will become uncollectible.

Question 7

Two basic methods are used for estimating the amount of uncollectibles at the end of the accounting period-the percentage of sales method and the percentage of receivables method.

Question 8

Most firms are able to increase sales by extending credit to customers.

Question 9

Under the direct write-off method, the bad debt expense is recognized before it has been determined that an account is uncollectible.

Question 10

One method for estimating the amount of uncollectibles involves taking a percentage of sales on account.

Question 11

Match the terms with the definitions.a.accounts receivable turnover
b.average collection period
c.reversing entry
d.return on owner's equity
e.current assets
f.current liabilities
g.current ratio
h.post-closing trial balance
i.Mortgage Payable
j.income from operations
k.interstatement analysis
l.mortgage
m.long-term liabilities
The direct write-off method has one advantage⎯it is very simple to apply.

Question 12

Match the terms with the definitions.a.accounts receivable turnover
b.average collection period
c.reversing entry
d.return on owner's equity
e.current assets
f.current liabilities
g.current ratio
h.post-closing trial balance
i.Mortgage Payable
j.income from operations
k.interstatement analysis
l.mortgage
m.long-term liabilities
Most people tend to buy more if they can "charge it" rather than pay cash.

Question 13

Match the terms with the definitions.a.accounts receivable turnover
b.average collection period
c.reversing entry
d.return on owner's equity
e.current assets
f.current liabilities
g.current ratio
h.post-closing trial balance
i.Mortgage Payable
j.income from operations
k.interstatement analysis
l.mortgage
m.long-term liabilities
Under the allowance method, the expense associated with an uncollectible account is recognized when it has been determined that a customer will not pay the amount owed.

Question 14

Match the terms with the definitions.a.accounts receivable turnover
b.average collection period
c.reversing entry
d.return on owner's equity
e.current assets
f.current liabilities
g.current ratio
h.post-closing trial balance
i.Mortgage Payable
j.income from operations
k.interstatement analysis
l.mortgage
m.long-term liabilities
The term "net receivables" refers to the difference between Accounts Receivable and Allowance for Bad Debts.

Question 15

Match the terms with the definitions.a.accounts receivable turnover
b.average collection period
c.reversing entry
d.return on owner's equity
e.current assets
f.current liabilities
g.current ratio
h.post-closing trial balance
i.Mortgage Payable
j.income from operations
k.interstatement analysis
l.mortgage
m.long-term liabilities
There are three methods of accounting for uncollectible accounts⎯the direct write-off method, the allowance method, and the reserve method.

Question 16

Some businesses and individuals who "charge it" are unwilling or unable to "pay for it."

Question 17

Match the terms with the definitions.a.accounts receivable turnover
b.average collection period
c.reversing entry
d.return on owner's equity
e.current assets
f.current liabilities
g.current ratio
h.post-closing trial balance
i.Mortgage Payable
j.income from operations
k.interstatement analysis
l.mortgage
m.long-term liabilities
Under the accrual basis of accounting, the allowance method is generally required for financial reporting purposes.

Question 18

Match the terms with the definitions.a.accounts receivable turnover
b.average collection period
c.reversing entry
d.return on owner's equity
e.current assets
f.current liabilities
g.current ratio
h.post-closing trial balance
i.Mortgage Payable
j.income from operations
k.interstatement analysis
l.mortgage
m.long-term liabilities
The percentage of sales method emphasizes proper estimating and reporting of bad debt expense on the income statement and the matching of expenses with revenues.

Question 19

Match the terms with the definitions.a.accounts receivable turnover
b.average collection period
c.reversing entry
d.return on owner's equity
e.current assets
f.current liabilities
g.current ratio
h.post-closing trial balance
i.Mortgage Payable
j.income from operations
k.interstatement analysis
l.mortgage
m.long-term liabilities
The allowance for bad debts account may have a debit balance prior to adjustment.

Question 20

Match the terms with the definitions.a.accounts receivable turnover
b.average collection period
c.reversing entry
d.return on owner's equity
e.current assets
f.current liabilities
g.current ratio
h.post-closing trial balance
i.Mortgage Payable
j.income from operations
k.interstatement analysis
l.mortgage
m.long-term liabilities
Aging the receivables is often referred to as the percentage of sales method.

Question 21

Allowance for Bad Debts is a contra-liability account.

Question 22

The amount of the year-end adjustment for Allowance for Bad Debts is equal to the aging percent of uncollectible accounts multiplied by the amount of accounts receivable.

Question 23

If after aging the accounts receivables, it is estimated that $900 will not be collected and the allowance account has an existing debit balance of $200, the adjusting entry would be for the amount of $700.

Question 24

If after taking a percentage of sales on account, it is estimated that $1,000 will not be collected and the allowance account has an existing credit balance of $200, the adjusting entry would be for the amount of $1,200.

Question 25

When a large balance accumulates in the allowance for bad debts account, the percentage of sales used to estimate uncollectibles should be modified.

Question 26

The percentage of receivables method of estimating uncollectible accounts is based on the relationship between the amount of accounts payable and the amount of uncollectible accounts.

Question 27

The direct write-off method of determining bad debt expense is subjective and can be manipulated by management.

Question 28

If after aging the accounts receivables, it is estimated that $1,800 will not be collected and the allowance account has an existing credit balance of $300, the adjusting entry would be for the amount of $1,500.

Question 29

In aging the receivables, the estimate of uncollectible accounts is based on past experience and increases as the number of days past due increases.

Question 30

The balance of the allowance for bad debts account after adjustment, using the percentage of sales method, must be equal to the percent of uncollectible accounts multiplied by the amount of credit sales.

Question 31

The direct write-off method is simple to apply.

Question 32

Under the percentage of sales method, the credit sales are analyzed to estimate the amount that will not be collected.

Question 33

Under the percentage of sales method, the adjusting entry at the end of the period for bad debt expense is affected by the current balance in the allowance for bad debts account.

Question 34

Computing a percentage of accounts receivable is the simplest and most commonly used approach to estimating uncollectible accounts.

Question 35

The percentage of receivables method is often referred to as aging the receivables.

Question 36

If actual write-offs are significantly higher or lower than estimated uncollectible accounts over a number of periods, a large debit or credit balance will accumulate in the allowance for bad debts account.

Question 37

Once an account has been written off using the direct write-off method, it will not be collected.

Question 38

The allowance for bad debts account may have a credit balance prior to adjustment.

Question 39

In aging the receivables, each customer's balance is analyzed separately to determine how long it has been outstanding.

Question 40

The allowance for bad debts account is sometimes referred to as Allowance for Doubtful Accounts.

Question 41

Last year, the Tilden Co. had credit sales in the amount of $470,000, and it had uncollectible accounts in the amount of $4,700. Based on last year, what would the percent of estimated uncollectible accounts be this year?

A) 10%
B) 4%
C) 1%
D) 4.7%

Question 42

Dude Ranch Circle estimates its uncollectible accounts at 1.5% of its credit sales of $825,000. When adjusting for estimated losses from uncollectible accounts, the debit to Bad Debt Expense is

A) $82,500.
B) $123,750.
C) $12,375.
D) $8,250.

Question 43

After aging the accounts receivable, it is estimated that $1,200 will not be collected and the allowance account has an existing credit balance of $400. If the accounts receivable total $130,000, the net receivables would be

A) $128,800.
B) $129,600.
C) $128,400.
D) $128,000.

Question 44

Which of the following is an advantage of using the direct write-off method?

A) The revenue associated with the sale might be recognized in one period and the expense resulting from the uncollectible account recognized in another.
B) The amount of Bad Debt Expense recognized in a given period is subject to manipulation by management.
C) The amount of Accounts Receivable reported on the balance sheet does not represent the amount of cash actually expected to be collected.
D) It is very simple to apply.

Question 45

When making the current period's adjusting entry under the percentage of sales method, the balance in Allowance for Bad Debts is

A) doubled.
B) ignored.
C) divided in half and this amount is used for the adjustment.
D) 30% of the amount to be used for the adjustment.

Question 46

On the balance sheet, any account having a balance intended to be deducted from another related account balance for financial statement purposes is known as a(n)

A) expense account.
B) discount account.
C) contra account.
D) uncollectible account.

Question 47

Accountants argue that which of the following approaches to estimating Allowance for Bad Debts provides a realistic estimate of the net receivables?

A) taking a percentage of net sales
B) taking a percentage of revenue
C) aging the accounts receivable
D) analyzing the sales on account

Question 48

The amounts that cannot be collected from charge customers are called

A) Collection Deficiency Expense.
B) Bad Debt Expense.
C) Loss from Uncollectible Accounts.
D) Uncollectible Charges Expense.

Question 49

In view of past experience, it is expected there will be a loss due to uncollectible accounts of an amount equal to one-half of one percent of the sales on account during the year. If the sales on account amounted to $250,000, the estimated uncollectible account losses would be

A) $25.
B) $1,250.
C) $2,500.
D) $25,000.

Question 50

Which of the following is a method of accounting for uncollectible accounts?

A) reserve method
B) allowance method
C) allocation method
D) accounts receivable method

Question 51

The expense associated with an uncollectible account is recognized when it has been determined that a customer will not pay the amount owed under the

A) reserve method.
B) allowance method.
C) allocation method.
D) direct write-off method.

Question 52

Under the direct write-off method, when a previously written-off account is recovered in the same accounting period, which of the following entries is required to reinstate the account?

A) debit Accounts Receivable and credit Bad Debt Expense
B) debit Accounts Receivable and credit Cash
C) debit Cash and credit Bad Debt Expense
D) debit Cash and credit Accounts Receivable

Question 53

After aging the accounts receivable, it is estimated that $420 will not be collected and the allowance account has an existing debit balance of $100. If accounts receivable is $145,000, the net receivables would be

A) $145,000.
B) $144,580.
C) $144,900.
D) $144,480.

Question 54

The allowance for bad debts account is contra to which of the following accounts?

A) Revenue
B) Cash
C) Accounts Receivable
D) Bad Debt Expense

Question 55

The adjusting entry to record an increase in Allowance for Bad Debts involves

A) debiting Allowance for Bad Debts and crediting Bad Debt Expense.
B) debiting Accounts Receivable and crediting Bad Debt Expense.
C) debiting Allowance for Bad Debts and crediting Accounts Receivable.
D) debiting Bad Debt Expense and crediting Allowance for Bad Debts.

Question 56

One major cost of selling goods on account could be

A) cash shortages.
B) easy credit.
C) accounts payable.
D) uncollectible accounts.

Question 57

The accounting concept that states expenses should be recognized in the same period with the revenues they helped to produce is the

A) contra-account principle.
B) allowance method.
C) matching principle.
D) uncollectible accounts technique.

Question 58

Under the allowance method, to write off an account that has been determined to be uncollectible, the entry would include

A) debiting Accounts Receivable and crediting Allowance for Bad Debts.
B) debiting Bad Debt Expense and crediting Allowance for Bad Debts.
C) debiting Allowance for Bad Debts and crediting Bad Debt Expense.
D) debiting Allowance for Bad Debts and crediting Accounts Receivable.

Question 59

When an account has been written off under the direct write-off method in one period and is collected in a subsequent period, the credit to reinstate the account is made to

A) Accounts Receivable.
B) Bad Debt Expense.
C) Bad Debt Income.
D) Uncollectible Accounts Recovered.

Question 60

After aging the accounts receivable, it is estimated that $790 will not be collected and the allowance account has an existing debit balance of $230. The adjusting entry under the aging approach would be for the amount of

A) $790.
B) $230.
C) $560.
D) $1,020.

Question 61

Match the terms with the definitions.a.aging the receivables
b.allowance method
c.bad debt expense
d.direct write-off method
e.matching principle
f.net receivables
g.percentage of receivables method
h.percentage of sales method
A concept that requires expenses to be matched with the revenues they helped to produce.

Question 62

A detailed analysis of the accounts receivable to determine the length of time each account has been outstanding is called

A) taking a percentage of sales on account.
B) aging the accounts receivable.
C) analyzing the accounts receivable.
D) aging the uncollectible accounts.

Question 63

Match the terms with the definitions.a.aging the receivables
b.allowance method
c.bad debt expense
d.direct write-off method
e.matching principle
f.net receivables
g.percentage of receivables method
h.percentage of sales method
A method in which the current year's uncollectible accounts are estimated based on the relationship between the amount of credit sales and the amount of uncollectible accounts in prior years.

Question 64

Match the terms with the definitions.a.aging the receivables
b.allowance method
c.bad debt expense
d.direct write-off method
e.matching principle
f.net receivables
g.percentage of receivables method
h.percentage of sales method
A technique that attempts to recognize bad debt expense in the same period that the related credit sales are made.

Question 65

Match the terms with the definitions.a.aging the receivables
b.allowance method
c.bad debt expense
d.direct write-off method
e.matching principle
f.net receivables
g.percentage of receivables method
h.percentage of sales method
A method in which the current year's uncollectible accounts are estimated based on the relationship between the amount of accounts receivable and the amount of uncollectible accounts in prior years.

Question 66

After aging the accounts receivable, it is estimated that $700 will not be collected and the allowance account has an existing credit balance of $100. The adjusting entry under the aging approach would be for the amount of

A) $100.
B) $600.
C) $700.
D) $800.

Question 67

Texas Roundup uses the direct write-off method in accounting for uncollectible accounts. ​
Required:
Record the above transactions in general journal form.

Question 68

Supreme Carpet Care estimates the amount of uncollectible accounts using the percentage of receivables method. After aging the accounts, it is estimated that $7,225 will not be collecteD.​
​
Required:
Give the end-of-period adjusting entry at December 31 in general journal form to enter the estimate for bad debt expense assuming the allowance for bad debts account has a debit balance of $420 before adjustment.

Question 69

Jill's Wholesale House uses the direct write-off method in accounting for uncollectible accounts. Record the following transactions in general journal form.

Question 70

Match the terms with the definitions.a.aging the receivables
b.allowance method
c.bad debt expense
d.direct write-off method
e.matching principle
f.net receivables
g.percentage of receivables method
h.percentage of sales method
A loss from failure to collect an account receivable.

Question 71

Under the direct write-off method, when an account receivable is written off in one accounting period and is collected in the following accounting period, which of the following would be included in the journal entry?

A) debit Accounts Receivable
B) credit Bad Debt Expense
C) credit Cash
D) credit Accounts Receivable

Question 72

Match the terms with the definitions.a.aging the receivables
b.allowance method
c.bad debt expense
d.direct write-off method
e.matching principle
f.net receivables
g.percentage of receivables method
h.percentage of sales method
A method in which the bad debt expense is not recognized until it has been determined that an account is uncollectible.

Question 73

When all of the cash for an account previously written off under the direct write-off method is unexpectedly collected, the correct entry is

A) debit Bad Debt Expense and credit Accounts Receivable.
B) debit Accounts Receivable and credit Bad Debt Expense.
C) debit Cash and credit Accounts Receivable.
D) dependent on the period in which the cash was collected.

Question 74

The following account balances are those of Music Land Supply Company as of December 31, the end of the fiscal year, before adjustments. ​
Required:
Prepare the necessary adjusting entry to record Bad Debt Expense in each of the following independent cases.
a.
Uncollectible accounts are estimated at 1.5% of credit sales.
b.
An aging of the accounts receivable indicates that $6,850 will not be collected.
c.
Assume the same facts in (b), except that the balance in Allowance for Bad Debts is a $420 debit before the adjustment.
d.
Assume the same facts as in (a), except that the balance in Allowance for Bad Debts is a $350 debit before the adjustment.

Question 75

Match the terms with the definitions.a.aging the receivables
b.allowance method
c.bad debt expense
d.direct write-off method
e.matching principle
f.net receivables
g.percentage of receivables method
h.percentage of sales method
The process of estimating the uncollectible amount by analyzing account balances according to the length of time the accounts have been outstanding.

Question 76

The direct write-off method is

A) acceptable for financial reporting purposes.
B) required for income tax purposes.
C) acceptable for auditing purposes.
D) required by generally accepted accounting principles.

Question 77

Match the terms with the definitions.a.aging the receivables
b.allowance method
c.bad debt expense
d.direct write-off method
e.matching principle
f.net receivables
g.percentage of receivables method
h.percentage of sales method
The amount a business expects to collect from its accounts receivable; calculated as Accounts Receivable less Allowance for Bad Debts.