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When a business sells merchandise to a customer, _____ is debited and ______ is credited.

Accounts Receivable and Sales

If a payment is received by a customer within the discount period, the following journal entry would be

debit to cash and debit to sales discounts and credit to accounts receivable

The allowance method

Is required when bad debts are material in amount.

What is the proper journal entry for estimated uncollectibles?

Debit to Bad Debt Expense and credit to Accounts Receivable

What is the journal entry for actual uncollectibles? (write-off)

Debit allowance for doubtful accounts and credit Accounts Receivable

Aging of Accounts Method

A method of estimating bad debts expense that involves a detailed examination of outstanding accounts and their length of time past due.

Percent of Sales Method

The allowance method based on the idea that a given percent of a company's credit sales for the period are uncollectible

Notes Receivable

Claims for which formal instruments of credit are issued as proof of the debt

Allowance for Doubtful Accounts on the balance sheet is offset against _________

Accounts Receivable

Two bases for estimating uncollectibles are

percentage of receivables and percentage of sales

Promissory Note

A written promise to pay a specified amount of money on demand or at a definite time.

Calculation for interest bearing note

Face Vale of Note x Annual Interest Rate x Time in terms of one year (month/year) =Interset

When a company receives a note receivable what is debited and what is credited?

Notes receivable is debited and Accounts Receivable is credited

When disposing of notes receivable, what are the three journal entries?

Cash is debited and notes receivable and interest revenue are credited

Book Value

Cost - Accumulated Depreciation

Depreciable Cost (formula)

Cost-Salvage Value

Depreciation expense (formula)

Depreciable Cost/Useful life in years

Par Value Stock

Capital stock that has been assigned a value per share in the corporate charter. It represents the legal capital per share that must be retained in the business for the protection of corporate creditors.

When a stated value is assigned to the share then it becomes...

the legal capital per share


The investment of cash and other assets in the corporation by stockholders in exchange for capital stock

Retained Earnings

net income retained in a corporation

Treasury stock

Is when a company buys back its own stock

Preferred Stock

Has contractual claims that give it priority over common stock

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