Accounts receivables

Question 1

What are accounts receivables?

Answer 1

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.

Question 2

What is the direct write off method?

Answer 2

The company wait until it is clear that a customer cannot pay, which may be after the accounting period that the receivable was recorded.

Question 3

What is the allowance method?

Answer 3

Recording the bad debts expense in the period when the related sales are recorded by using allowance for doubtful account.

Question 4

Which method does not best match the matching principle?

Answer 4

direct write off method.

Question 5

Why does the direct write-off method usually not best match the matching principle?

Answer 5

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.

Question 6

What account is “allowance for doubtful account”?

Answer 6

Contra-asset account

Question 7

An increase in allowance for doubtful account will be credit or debit?

Answer 7

Credit

Question 8

A decrease in allowance for doubtful account will be credit or debit?

Answer 8

Debit

Question 9

What are the two ways to compute the estimated noncollectable

Answer 9

1. Percent of receivables

2. Aging of receivables

Question 10

How is bad debt expense calculated?

Answer 10

Estimated allowance for doubtful account subtract un-adjusted balance in the allowance account

Question 11

How to calculate the carry amount of Accounts Receivables?

Answer 11

The gross amount of AR subtract the allowance for doubtful account.

Question 12

When will the t-account for AFDA show a credit balance?

Answer 12

When the total amount of accounts receivables written off is less than the estimated allowance from the last period

Question 13

When will the t-account for AFDA show a debit balance?

Answer 13

When the total amount of accounts receivables written off is greater than the estimated allowance from the last period.

Question 14

How is the aging of receivables method used to estimate the noncollectable AR?

Answer 14

1. Classify each receivables by how long it is past due
2. Each age group is multiplied by its estimated noncollectable percentage
3. Estimated noncollectable for each group are totaled.

Question 15

What are the 2 benefits of allowance method?

Answer 15

1. It records estimated bad debts expense in the period when the related sales are recorded.
2. It reports accounts receivables on the statement of financial position at the estimated amount of cash to be collected.

Question 16

What are notes receivables?

Answer 16

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.

Question 17

How to compute interest?

Answer 17

Principle of the note x Annual interest rate x Time expressed in fraction of year.