Upgrade to remove ads
Accounting Exam 2
Terms in this set (36)
Amounts to be received in the future due to the sale of goods or services
-amounts due from individuals and other companies
-amounts due from customers for credit sales
Most common receivables:
accounts receivable and notes receivable
Other/less common receivable accounts
interest, rent, tax refund, and receivables from employees
an asset consisting of a written promise to receive a definite sum of money on demand or on specific future dates
-is a supplementary record to maintain an account for each customer
-records journal entries that affect AR
Company sells merch on account. The entry to record this sale would include:
-debit to AR
-credit to sales
In July, Lane Co. sells merchandise to Avery Co. on account. In August, Avery pays the balance in full. The entry that Lane will make to record the receipt of cash will include a credit to the _______ account.
direct write-off method
Method that records the loss from an uncollectible account receivable at the time it is determined to be uncollectible; no attempt is made to estimate bad debts.
On August 1, Hanes Co. determines that it cannot collect $150 from a customer. Hanes uses the direct write-off method. Hanes will record the write-off of this account by debiting:
Bad Debts Expense for $150.
Iron Company collects cash in full from a customer who purchased merchandise last month on credit. To record the receipt of cash, Iron Company should make the following entries in the general journal.
-debit to cash
-credit to accounts receivable
Allowance Method for Uncollectible Accounts
estimates bad debt expense before an uncollectible account receivable has been determined to be uncollectible
If an account receivable balance previously written off using the direct write-off method is later collected in full, the entry to record the payment must include a credit to:
Bad Debts Expense - because two entries are required: one to reinstate the account by debiting accounts receivable and crediting bad debts expense. The second entry is to debit cash and credit accounts receivable.
On February 15, Symth Co. determines that it cannot collect $500 owed by its customer, A. Winds. Symth records the loss using the direct write-off method. This entry to record the write-off on February 15 would include a:
-debit to bad debts expense
-credit to AR - A. Winds
The allowance for doubtful accounts is a contra asset account that equals:
total uncollectible accounts
In September, DK Company sells merchandise to Lions Company on credit. In October, Lions Company pays the balance in full. The entry to record the collection of cash by DK Company in October will include a (debit/credit) to Accounts Receivable.
Lani Co. uses the allowance method to account for bad debts. At the end of 2010, their unadjusted trial balance shows an accounts receivable balance of $400,000; allowance for doubtful accounts balance of $400 (debit); and sales of $1,200,000. Based on history, Lani estimates that bad debts will be 1% of accounts receivable. The entry to record estimated bad debts will include a debit to Bad Debts Expense in the amount of:
4400 bc $400,000 x 1% = 4,000 + 400 debit balance
advantages of allowance method
-reports accounts receivable balance at net realizable value
-matches expenses with related sales
Bad debts expense will be recorded with direct write-off method
in the future, when accounts are uncollectible
Bad debts expense will be recorded with allowance method
currently, using estimated uncollectibles
percent of sales method
A method of estimating uncollectible receivables that calculates bad debts expense based on a percentage of net credit sales.
percent of receivables method
A method of estimating uncollectible receivables by determining the balance of the Allowance for Bad Debts account based on a percentage of accounts receivable.
aging of receivables method
A method of estimating uncollectible receivables by determining the balance of the Allowance for Bad Debts account based on the age of individual accounts receivable. (aka balance sheet method)
examples of percent of sales, or income statement, method entry
bad debts expense 2400
allowance for doubtful accounts 2400
The allowance for doubtful accounts is a/an _________ asset account and has a normal credit balance.
The _________ of the note is the one that signed the note and promised to pay at maturity.
The __________ of the note is the person to whom the note is payable.
Account Receivable Turnover
net credit sales/average net accounts receivable
Accounts Receivable Turnover measures
how often, on avg, receivables are collected during the period
When the allowance method is based on sales, the prior balance in the Allowance for Doubtful Accounts account is/is not taken into consideration
The _________ of accounts receivable method uses several percentages to estimate the allowance.
DWO or A Does not estimate an allowance for doubtful accounts
DWO or A Usually does not best match sales and expenses because bad debts expense is not recorded until an account becomes uncollectible, which usually occurs in a period after the credit sale.
Does not predict bad debts expense.
Estimates bad debts expense related to the sales recorded in that period.Allowance6.When an account is written off, the debit is to Bad Debts Expense.
Accounts receivable on the balance sheet is reported at net realizable value.
YOU MIGHT ALSO LIKE...
ACCT 2001 CH. 8 study guide
Review 8 Multiple Choice
OTHER SETS BY THIS CREATOR
Strategy (7, 8, 9, 10, 11, 12)
MKT4630 Exam 1
mkt quiz 3
OTHER QUIZLET SETS
Pulmonary Embolus Case Study
Elections and Campaigns