Chapter 5 Flashcards
Relatively small amounts that are collected within 30 days are called_____ receivable, whereas longer term or large amounts that require interest are called
account receivabe
notes receivable
The net realizable value (NRV) represents the amount of receivable a company estimates it will actually collect
The allowance for doubtful accounts represents a company’s estimate of the amount of uncollectible receivables
Both are estimates
Recognizing bad debts(uncollectible accounts expense) expense increases the accuracy of the financial statements.
True
When a company recognizes uncollectible accounts expense, cash flows from operating activities
Is not effected
When uncollectible accounts are estimated
there is a better matching of revenues with expenses
the balance sheet reports the amount of cash the company expects to collect
Differences between accounts receivable and notes receivable include
the size of the receivable
whether or not interest is due
the collection period
The allowance for doubtful accounts is
a company’s estimate of the amount of uncollectible receivables
A company recorded an event that had no affect on total assets, net income, or cash flow. This could have been caused by
writing off an uncollectible account
When a company recognizes uncollectible accounts expense, total
net income decreases
equity decreases
assets decrease
If the accountant wants to estimate the most accurate balance for the Allowance for Doubtful Accounts account that appears on the year-end balance sheet, they will likely use the percent of _________ method of estimating
receivables
Estimating uncollectible accounts improves the usefulness of the
balance sheet: reports the amount of cash the company actually expects to collect (net realizable value of accounts receivable).
income statement: The income statement provides a clearer picture of managerial performance because it better matches the uncollectible accounts expense with the revenue it helped produce.
NOT CASH FLOWS: The statement of cash flows is not affected by the recognition of uncollectible accounts.
Before adjusting its accounts on December 31, Year 2, Silver Co. had a $20,000 balance in its Accounts Receivable account and a $300 credit balance in its Allowance for Doubtful Accounts account. Silver estimates uncollectible accounts to be 5% of accounts receivable. The Year 2 uncollectible accounts expense shown on the income statement will be
Ending balance in the allowance account = $20,000 x 5% = $1,000. 1000- $300 credit balance, $700 of expense must be added to the account.
The net realizable value of accounts receivable is
face value of accounts receivable less an allowance for doubtful accounts
an estimate of the amount a company expects to collect from its accounts receivable
Writing off an uncollectible accounts receivable is a(n) ______ transaction.
asset exchange: Since the balances in both the Accounts Receivable and the Allowance accounts decrease, the net realizable value of receivables—and therefore total assets—remains unchanged.
Which of the following statements about aging accounts receivable is true
Higher percentages are applied to older accounts: The older an account receivable becomes, the less likely it is to be collected. Therefore, the percentage of accounts receivable that is expected to be uncollectible increases as receivables age (become older).
The total of the aging schedule represents
the ending balance in the Allowance for Doubtful Accounts account, not the amount of expense.
The amount of expense is determined by
subtracting the existing balance in the allowance account from the estimate of the balance that should be in the allowance account as determined by the aging schedule.
Because the percent of revenue method focuses on determining the uncollectible accounts expense, it is often called the
income statement approach
Assets belonging to the maker of a promissory note that are assigned as security to ensure the principal and interest will be paid when due are called
Collateral
Before adjusting its accounts on December 31, Year 2, Silver Co. had a $20,000 balance in its Accounts Receivable account and a $300 credit balance in its Allowance for Doubtful Accounts account. Silver estimates uncollectible accounts to be 5% of accounts receivable. The Allowance for Doubtful Accounts shown on the Year 2 balance sheet will be
Ending balance in the allowance account = $20,000 x 5% = $1,000.
Alpha Company loaned $5,000 to Beta Company on October 1, Year 1 at 6% interest. On December 31, Year 1 Alpha Company’s financial statements will report accrued interest of
5,000 Principal x 6% = $300 per year ÷ 12 = $25 per month x 3 months = $75
he person responsible for making payment on the due date is the maker of the promissory note.
True
Western Company loaned Eastern Company money. This event affects Western Company’s
statement of cash flows
balance sheet
Because the percent of receivables method focuses on determining the best estimate of the allowance account, it is often called the
Balance sheet approach
