Accounts receivables Flashcards
What are accounts receivables?
Accounts receivables arise from sales or services provided to customer on account (credit) These are informal promise by customer to pay for goods and services, and very liquid assets.
What is the direct write off method?
The company wait until it is clear that a customer cannot pay, which may be after the accounting period that the receivable was recorded.
What is the allowance method?
Recording the bad debts expense in the period when the related sales are recorded by using allowance for doubtful account.
Which method does not best match the matching principle?
direct write off method.
Why does the direct write-off method usually not best match the matching principle?
Direct write off method may record the expenses after the accounting period, while matching principle requires the sales and expenses to be recorded in the same period.
What account is “allowance for doubtful account”?
Contra-asset account
An increase in allowance for doubtful account will be credit or debit?
Credit
A decrease in allowance for doubtful account will be credit or debit?
Debit
What are the two ways to compute the estimated noncollectable
- Percent of receivables
2. Aging of receivables
How is bad debt expense calculated?
Estimated allowance for doubtful account subtract un-adjusted balance in the allowance account
How to calculate the carry amount of Accounts Receivables?
The gross amount of AR subtract the allowance for doubtful account.
When will the t-account for AFDA show a credit balance?
When the total amount of accounts receivables written off is less than the estimated allowance from the last period
When will the t-account for AFDA show a debit balance?
When the total amount of accounts receivables written off is greater than the estimated allowance from the last period.
How is the aging of receivables method used to estimate the noncollectable AR?
- Classify each receivables by how long it is past due
- Each age group is multiplied by its estimated noncollectable percentage
- Estimated noncollectable for each group are totaled.
What are the 2 benefits of allowance method?
- It records estimated bad debts expense in the period when the related sales are recorded.
- It reports accounts receivables on the statement of financial position at the estimated amount of cash to be collected.
What are notes receivables?
A promissory note is a written promise to pay a specified amount of money, usually with interest, either on demand or at a definite future date.
How to compute interest?
Principle of the note x Annual interest rate x Time expressed in fraction of year.
