Deck 8: Accounting for Receivables

Question 1

If a company uses the allowance method to account for uncollectible accounts, the entry to write off an uncollectible account only involves balance sheet accounts.

Answer 1

True

Question 2

The three primary accounting problems with accounts receivable are: (1) recognizing, (2) amortizing, and (3) disposing.

Answer 2

False

Question 3

A subsidiary accounts receivable ledger is only used by companies who have perpetual inventory.

Answer 3

False

Question 4

Bad debt expense is sometimes called uncollectible account expense.

Question 5

Accounts receivable are normally classified as a current liability on the company's balance sheet.

Question 6

If a customer does NOT pay their account within 30 days, then interest charges will always be assessed on their account balance.

Question 7

Accounts receivable are the result of cash and credit sales.

Question 8

Under the allowance method, no attempt is made to match bad debts expense to sales revenues in the same accounting period.

Question 9

Other receivables include non-trade receivables such as loans to company officers.

Question 10

Sales on bank credit cards are typically reported as cash sales.

Question 11

Under the percentage of receivables method, if sales increase then the bad debt expense will also increase.

Question 12

Under the allowance method, Bad Debts Expense is debited when an account is deemed uncollectible and must be written off.

Question 13

Other receivables are receivables which are due at times other than the month end.

Question 14

Sales on credit cards which are NOT associated with a bank are reported as credit sales, NOT cash sales.

Question 15

A note receivable is a formal instrument of credit issued as proof of a debt between a debtor and the company.

Question 16

An aging of accounts receivable schedule is based on the premise that the longer the period an account remains unpaid, the greater the probability that it will eventually be collected.

Question 17

Under the allowance method, the net realizable value of receivables is the same both before and after an account has been written off.

Question 18

Both accounts receivable and notes receivable represent claims that are expected to be collected in cash.

Question 19

Net realizable value is the collectible amount of a receivable.

Question 20

Trade receivables occur when two companies' trade or exchange notes receivables.

Question 21

A collection period of more than 30 days will result in faster cash flow for the company than a collection period of 15 days.

Question 22

A promissory note is a written promise to pay a specific amount of money on demand or at a definite time.

Question 23

The collection period can be used to assess the length of the company's operating cycle.

Question 24

A dishonoured note receivable will have a new maturity assigned to it at the time of the default.

Question 25

A nonbank credit card transaction would be recorded as an account receivable transaction for which of the following companies?

A) Bank of Montreal
B) Canadian Tire
C) Bank of Nova Scotia
D) Royal Bank

Question 26

Interest revenue would increase if the interest rate on a note receivable was increased.

Question 27

A note receivable is dishonoured when it is NOT paid in the allotted time period.

Question 28

The term "receivables" refers to

A) amounts due from individuals or companies.
B) merchandise to be collected from individuals or companies.
C) cash to be paid to creditors.
D) cash to be paid to debtors.

Question 29

Notes or accounts receivables that result from sales transactions are often called

A) sales receivables.
B) non-trade receivables.
C) trade receivables.
D) merchandise receivables.

Question 30

Each of the major types of receivables should be identified in the balance sheet or in the notes to the financial statements.

Question 31

A note receivable must always have an interest rate attached to it.

Question 32

The collection period should be the same for all industries.

Question 33

One of the most common ways to speed up cash flow from accounts receivable is to borrow money from the bank using the accounts receivable as collateral.

Question 34

Which of the following companies be the least likely to have cash sales?

A) drug store
B) Air Canada
C) Algonquin College
D) aircraft manufacturer

Question 35

A dishonoured note is normally returned to the accounts receivable account when it is dishonoured.

Question 36

A note receivable is honoured when it is NOT paid in the allotted time period.

Question 37

The gross amount of receivables and the allowance for doubtful accounts must be reported in the balance sheet.

Question 38

The collection period for accounts receivable is the receivables turnover divided by the days in the year.

Question 39

The accounts receivable turnover is calculated as the net credit sales divided by the average gross accounts receivable.

Question 40

The accounts receivable turnover ratio measures how quickly a company collects its accounts receivable.

Question 41

When financing charges are added to an account balance the seller increases the

A) cash account.
B) interest expense account.
C) accounts receivable account.
D) accounts payable account.

Question 42

When should the company expect to receive cash from the credit card company?

A) less than 7 days
B) less than 30 days
C) less than a few days
D) never record as a cash transaction

Question 43

A customer uses their Gary's Sport Shop credit card to charge a treadmill at Gary's Sport Shop. The price is $1,000 and the financing charge is 18% per annum if the bill is NOT paid in 30 days. The customer fails to pay the bill within 30 days and a finance charge is added to the customer's account. The accounts affected by the journal entry made by Gary's Sport Shop to record the finance charge are

A) Accounts Receivable Cash
B) Cash Finance Receivable
C) Accounts Receivable Interest Payable
D) Accounts Receivable Interest Revenue

Question 44

A customer uses their Gary's Sport Shop credit card to charge a treadmill at Gary's Sport Shop. The price is $1,000 and the financing charge is 18% per annum if the bill is NOT paid in 30 days. The customer fails to pay the bill within 30 days and a finance charge is added to the customer's account. What is the amount of the finance charge?

A) $30
B) $15
C) $180
D) $6

Question 45

Retailers often add a financing charge to a customer's accounts receivable balance

A) if the customer fails to purchase additional merchandise.
B) if the customer pays more than the required amount.
C) if the account is not paid within a reasonable period of time.
D) if the account is not paid within five days.

Question 46

Most companies that sell on account record the collection of an accounts receivable in

A) both the subsidiary ledger and the general ledger.
B) the general ledger only.
C) the subsidiary ledger only.
D) Collections on account do not have to be recorded as all collections are deposited in the bank and will therefore be recorded on the bank statement.

Question 47

Three accounting issues associated with accounts receivable are

A) amortizing, returns, and valuing.
B) amortizing, valuing, and collecting.
C) recognizing, valuing, and accelerating cash receipts.
D) accrual, bad debts, and disposing.

Question 48

Interest revenue would NOT normally be recorded in which of the following situations?

A) notes receivable
B) an overdue accounts receivable
C) a note receivable which has been dishonoured
D) a nonbank credit card transaction

Question 49

Entries that affect accounts receivable are basically recorded twice:

A) once to the general ledger and once to the subsidiary ledger.
B) twice to the general ledger.
C) twice to the subsidiary ledger.
D) once to the cash account and once to the general ledger.

Question 50

Which of the following is used to track individual customer accounts?

A) trial balance
B) general journal
C) subsidiary ledger
D) general ledger

Question 51

Which of the following would require two journal entries?

A) to record merchandise returned that was previously sold on account in a perpetual inventory system
B) to record sales of merchandise on account in a periodic inventory system
C) to record cash purchases of inventory
D) to record collection of accounts receivable

Question 52

If a company fails to record estimated bad debts expense,

A) net realizable value is understated.
B) expenses are understated.
C) revenues are understated.
D) receivables are understated.

Question 53

Accounts receivables are generally expected to be collected in

A) 120 days.
B) 90 days.
C) 60 days.
D) 30 days.

Question 54

Under the allowance method, writing off an uncollectible account

A) affects only balance sheet accounts.
B) affects both balance sheet and income statement accounts.
C) affects only income statement accounts.
D) is not acceptable practice.

Question 55

Which one of the following is NOT a primary accounting issue associated with accounts receivable?

A) amortizing accounts receivable
B) recognizing accounts receivable
C) valuing accounts receivable
D) accelerating cash receipts from receivables

Question 56

The net amount expected to be received in cash from receivables is generally referred to as the

A) net realizable value.
B) book value.
C) fair value.
D) cash-equivalent value.

Question 57

Joe's Home Improvement Centre charges 19% interest on all unpaid Joe's credit card transactions beyond 30 days. On September 30, Rico failed to pay off his Joe's credit card balance of $6,500. What adjusting entry would be recorded by Joe on September 30 for Rico's unpaid credit card?

A) Debit to Credit Card Receivable and credit to Interest Revenue for $101.51.
B) Debit to Accounts Receivable and credit to Sales Revenue for $6,500.
C) Debit to Accounts Receivable and credit to Interest Revenue for $101.51.
D) Debit to Credit Card Receivable and a credit to Sales Revenue for $6,500.

Question 58

If a department store fails to make the entry to accrue the finance charges due from customers,

A) accounts receivable will be overstated.
B) interest revenue will be understated.
C) interest expense will be overstated.
D) interest expense will be understated.

Question 59

Under the allowance method, writing off an uncollectible account

A) will increase profit.
B) will decrease profit.
C) will have no effect on total assets reported on the balance sheet.
D) will increase and decrease profit.

Question 60

The two most common types of receivables are

A) accounts receivable and notes receivable.
B) notes receivable and other receivables.
C) trade receivables and other receivables.
D) accounts receivable and trade receivables.

Question 61

The best managed companies will have

A) no uncollectible accounts.
B) a very strict credit policy.
C) a very lenient credit policy.
D) some accounts that will prove to be uncollectible.

Question 62

If an account is collected after having been previously written off,

A) the allowance account should be debited.
B) Bad Debt Expense should be credited.
C) the gross accounts receivable will remain unchanged.
D) there will be both a debit and a credit to Accounts Receivable.

Question 63

Allowance for Doubtful Accounts on the balance sheet

A) is offset against total current assets.
B) increases the net realizable value of accounts receivable.
C) appears under the heading "Current Liabilities."
D) is offset against accounts receivable.

Question 64

When an account becomes uncollectible and must be written off,

A) allowance for doubtful accounts should be credited.
B) accounts receivable should be credited.
C) bad debts expense should be credited.
D) sales returns and allowances should be debited.

Question 65

At December 31, 2017, Chambers Co. has gross accounts receivable of $127,000. There is a $10,000 credit balance in the allowance for doubtful accounts. Historically, bad debt expense has averaged 15% of accounts receivable. The company's bad debt expense for 2017 is

A) $10,000.
B) $9,050.
C) $2,160.
D) $7,550.

Question 66

Under the allowance method of accounting for uncollectible accounts,

A) the net realizable value of accounts receivable is greater before an account is written off than after it is written off.
B) Bad Debts Expense is debited when a specific account is written off as uncollectible.
C) the net realizable value of accounts receivable in the balance sheet is the same before and after an account is written off.
D) Allowance for Doubtful Accounts is closed each year to the owner's capital account.

Question 67

When an account is written off using the allowance method, the

A) net realizable value of total accounts receivable will increase.
B) allowance account will decrease.
C) allowance account will increase.
D) gross accounts receivable will stay the same.

Question 68

Bad Debts Expense is considered

A) an avoidable cost in doing business on a credit approach.
B) an internal control weakness.
C) a necessary risk of doing business on a credit approach.
D) avoidable unless there is a recession.

Question 69

A debit balance in the Allowance for Doubtful Accounts

A) is the normal balance for that account.
B) indicates that actual bad debt write-offs have exceeded previous provisions for bad debts.
C) indicates that actual bad debt write-offs have been less than what was estimated.
D) can only occur if an incorrect accounting entry was recorded.

Question 70

The collection of an account that had been previously written off under the allowance method of accounting for uncollectibles

A) will increase profit.
B) will decrease profit.
C) will not affect profit.
D) will increase sales.

Question 71

When the allowance method of accounting for uncollectible accounts is used, bad debts expense is recorded

A) in the year after the credit sale is made.
B) in the same year as the credit sale.
C) as each credit sale is made.
D) when an account is written off as uncollectible.

Question 72

An aging of a company's accounts receivable indicates $10,000 is estimated to be uncollectible. The company has a $2,000 debit balance in its allowance for doubtful accounts. The adjustment to record bad debt expense for the period will require a(n)

A) $8,000 debit to Bad Debt Expense.
B) $8,000 credit to the Allowance for Doubtful Accounts.
C) $12,000 debit to Bad Debt Expense.
D) $12,000 credit to Accounts Receivable.

Question 73

An increase in the bad debt expense would NOT be caused by

A) an increase in cash sales.
B) poor economic climate.
C) an increase in credit sales.
D) a decrease in the quality of customers.

Question 74

At December 31, 2017, Chambers Co. has gross accounts receivable of $127,000. There is a $10,000 credit balance in the allowance for doubtful accounts. Historically, bad debt expense has averaged 15% of accounts receivable. The allowance for doubtful accounts at December 31, 2017 is

A) $10,000.
B) $19,050.
C) $1,500.
D) $17,550.

Question 75

When the allowance method is used to account for uncollectible accounts, Bad Debts Expense is debited when

A) a sale is made.
B) an account becomes bad and is written off.
C) management estimates the amount of uncollectibles.
D) a customer's account becomes past-due.

Question 76

If a company fails to record estimated bad debts expense,

A) profit will be understated.
B) profit will be overstated.
C) there will be no effect on profit.
D) receivables will be understated.

Question 77

A reasonable amount of uncollectible accounts is evidence

A) that the credit policy is too strict.
B) that the credit policy is too lenient.
C) of a sound credit policy.
D) of poor judgements on the part of the credit manager.

Question 78

To record estimated uncollectible accounts using the allowance method, the adjusting entry would be a

A) debit to Accounts Receivable and a credit to Allowance for Doubtful Accounts.
B) debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts.
C) debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable.
D) debit to Bad Debts Expense and a credit to Accounts Receivable.

Question 79

An aging of a company's accounts receivable indicates that $4,000 is estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,100 credit balance, the adjustment to record bad debts for the period will require a

A) debit to Bad Debts Expense for $4,000.
B) debit to Allowance for Doubtful Accounts for $2,900.
C) debit to Bad Debts Expense for $2,900.
D) credit to Accounts Receivable for $4,000.

Question 80

An alternative name for Bad Debts Expense is

A) Deadbeat Expense.
B) Uncollectible Accounts Expense.
C) Collection Expense.
D) Finance expense.