Chapter 5 Notes Flashcards

1
Q
A
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2
Q

Accounts Receivable

A

Amounts owed to a company by its customers from the sale of goods or services on account.

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3
Q

Credit Sales

A

Transfer goods or services to a customer today while bearing the risk of collecting payment from that customer in the future.

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4
Q

Revenue Recognition

A

The seller records revenue immediately once goods or services are provided to the customer, and future collection from the customer is probable.

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5
Q

Recording a Credit Sale

A

On March 1, a company provides services to a customer for $500. The customer doesn’t pay cash at the time of service, but instead promises to pay the $500 by March 31.

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6
Q

Debit Entry for Credit Sale

A

Accounts Receivable ……………………. 500

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7
Q

Credit Entry for Credit Sale

A

Service Revenue ……………………. 500

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8
Q

Recording the Subsequent Receipt

A

On March 31, the customer pays the $500 for services provided.

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9
Q

Debit Entry for Cash Receipt

A

Cash ……………………………………………. 500

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10
Q

Credit Entry for Cash Receipt

A

Accounts Receivable …………….. 500

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11
Q

Key Point on Accounts Receivable

A

Companies record an asset (accounts receivable) and revenue when they sell goods or services to their customers on account, expecting collection in the future.

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12
Q

Nontrade Receivables

A

Receivables that originate from sources other than customers, such as tax refund claims, interest receivable, and loans by the company to other entities.

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13
Q

Notes Receivable

A

Formal credit arrangements evidenced by written debt instruments (or ‘notes’).

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14
Q

Concept Check 5-1

A

Which of the following generally is recorded at the time a company provides services to customers on account? a. Accounts receivable b. Interest receivable c. Notes receivable d. Tax refund claims

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15
Q

Net Revenues Calculation

A

Calculate net revenues using returns, allowances, and discounts.

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16
Q

Net Revenues

A

Net revenues equals total revenues less any amounts for returns, allowances, and discounts.

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17
Q

Trade Discounts

A

Reduction in list price of a product or service used to provide incentives to larger customers or consumer groups to purchase from the company.

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18
Q

Example of a Trade Discount

A

F.Y.Eye typically provides laser eye surgery for $3,000 but offers it for $2,400 in March, recording Accounts Receivable and Service Revenue at $2,400.

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19
Q

Sales Returns and Allowances

A

Customers sometimes return goods or are dissatisfied with products or services because of a deficiency.

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20
Q

Sales Return

A

Customer returns goods.

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21
Q

Sales Allowances

A

Customer does NOT return goods but receives a reduction in the amount owed.

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22
Q

Sales Returns Example

A

On March 2, F.Y.Eye sells sunglasses for $200 on account, and on March 4, the customer returns them, leading to a debit of $200 to Sales Returns and a credit of $200 to Accounts Receivable.

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23
Q

Sales Allowances Example

A

On March 5, F.Y.Eye allows a $400 reduction for a customer dissatisfied with laser eye surgery, recording a debit of $400 to Sales Allowances and a credit of $400 to Accounts Receivable.

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24
Q

Common Mistake

A

Students sometimes misclassify contra revenue accounts—sales returns and sales allowances—as expenses.

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25
Q

Contra Revenues

A

Contra revenues represent reductions of revenues, whereas expenses represent the separate costs of generating revenues.

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26
Q

Sales Discounts

A

Reduction in the amount to be received from a credit customer if collection on account occurs within a specified period.

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27
Q

Discount Terms

A

Discount terms, such as 2/10, n/30, indicate the amount of the discount and the time period within which it’s available.

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28
Q

2/10 Discount

A

The term ‘2/10,’ pronounced ‘two ten,’ indicates the customer will receive a 2% discount if the amount owed is paid within 10 days.

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29
Q

n/30

A

Means that if the customer does not take the discount, full payment net of any returns or allowances is due within 30 days.

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30
Q

2/10, n/30

A

Terms indicating a 2% discount is available if payment is made within 10 days; otherwise, full payment is due within 30 days.

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31
Q

Sales Discounts

A

Reductions in sales revenue provided to customers for early payment.

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32
Q

Net Revenues

A

Total revenues minus trade discounts, sales returns, sales allowances, and sales discounts.

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33
Q

Trade Discount

A

A reduction in the listed price of a product or service, which reduces revenue directly.

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34
Q

Sales Returns

A

Products that customers return to the seller, reducing sales revenue.

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35
Q

Sales Allowances

A

Reductions in the selling price of goods that are not returned but for which the customer receives a discount.

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36
Q

Accounts Receivable

A

Money owed to a company by its customers for goods or services sold on credit.

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37
Q

Income Statement

A

A financial statement that reports a company’s revenues and expenses over a specific period.

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38
Q

Contra Revenue Accounts

A

Accounts that reduce total revenues, including sales returns, sales allowances, and sales discounts.

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39
Q

Adjusting Entries

A

Entries made at the end of an accounting period to update account balances.

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40
Q

Revenue Recognition Standard

A

A principle that requires a company to report revenues equal to the amount of cash it expects to be entitled to receive.

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41
Q

Cash Collection

A

The process of receiving cash from customers for sales made on credit.

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42
Q

Service Revenue

A

Income generated from providing services to customers.

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43
Q

Sales Revenue

A

Income generated from selling goods.

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44
Q

Ending Balance

A

The final amount remaining in an account at the end of a reporting period.

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45
Q

Effect of Sales Allowance

A

Results in a decrease to net income.

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46
Q

Collection During the Discount Period

A

Refers to receiving payment from customers within the specified discount period.

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47
Q

Collection After the Discount Period

A

Refers to receiving payment from customers after the specified discount period has expired.

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48
Q

Partial Income Statement

A

A segment of an income statement that shows specific revenues and expenses.

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49
Q

Laser Eye Surgery Pricing

A

Typically priced at $3,000, offered at a promotional price of $2,400.

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50
Q

Debit and Credit Entries

A

Accounting entries that increase or decrease accounts, respectively.

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51
Q

Cash Collection Amount

A

The specific amount of cash collected from customers, e.g., $1,960 or $2,000.

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52
Q

Sales Allowance Effect

A

Decreases net income.

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53
Q

Sales Allowance

A

A sales allowance decreases sales revenue in the income statement and decreases assets by decreasing the balance of accounts receivable.

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54
Q

Net Revenues

A

Net Revenues is equal to Total Revenue less Sales Returns, Sales Allowances, and Sales Discounts.

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55
Q

Allowance Method (GAAP)

A

Generally accepted accounting principles (GAAP) require that we account for uncollectible accounts using the allowance method.

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56
Q

Uncollectible Accounts

A

Customers’ accounts receivable we no longer expect to collect are referred to as uncollectible accounts, or bad debts.

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57
Q

Estimation of Uncollectible Accounts

A

Companies must estimate the amount of current accounts receivable that will prove to be uncollectible in the future and report this estimate as a contra asset to its accounts receivable.

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58
Q

Reporting of Accounts Receivable

A

Under the allowance method, accounts receivable are reported for the net amount expected to be collected.

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59
Q

Contra Asset Account

A

Estimated future uncollectible accounts are reported in a contra asset account, reducing net accounts receivable.

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60
Q

Bad Debt Expense

A

The company records the estimated future bad debts as Bad Debt Expense.

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61
Q

Allowance for Uncollectible Accounts

A

Allowance for Uncollectible Accounts is a contra asset account that represents the amount of accounts receivable not expected to be collected.

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62
Q

Kimzey’s Estimate

A

At the end of 2024, Kimzey is owed $20 million from customers and estimates that 30% will not be collected.

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63
Q

Calculation of Bad Debt Expense

A

The calculation for bad debt expense is $20 million × 30% = $6 million.

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64
Q

Write Off of Bad Debts

A

During the subsequent year, write off actual bad debts as uncollectible, noting that actual write-offs may differ from the previous year’s estimate.

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65
Q

Reporting Allowance

A

We report the allowance for uncollectible accounts in the asset section of the balance sheet, but it represents a reduction in the balance of accounts receivable.

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66
Q

Initial Year Allowance

A

At the end of the initial year, establish an allowance by estimating future uncollectible accounts.

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67
Q

Subsequent Year Estimation

A

At the end of the subsequent year, once again estimate future uncollectible accounts.

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68
Q

Accounts Receivable

A

Accounts receivable are amounts owed to a company by its customers.

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69
Q

Net Income Effect

A

The effect of a sales allowance is to decrease net income.

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70
Q

Sales Returns

A

Sales Returns are subtracted from Total Revenue to compute Net Revenues.

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71
Q

Sales Discounts

A

Sales Discounts are subtracted from Total Revenue to compute Net Revenues.

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72
Q

Reporting Estimates

A

Under the allowance method, companies are required to estimate future uncollectible accounts and report those estimates in the current year.

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73
Q

Balance of Accounts Receivable

A

The balance of accounts receivable is decreased by the amount of the allowance for uncollectible accounts.

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74
Q

Contra Asset

A

A contra asset is an asset account that is offset by another account, such as the allowance for uncollectible accounts.

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75
Q

Net Accounts Receivable

A

The difference between total accounts receivable and the allowance for uncollectible accounts.

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76
Q

Allowance for Uncollectible Accounts

A

A contra asset that represents a reduction in a related asset, used to record estimated future uncollectible accounts.

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77
Q

Bad Debt Expense

A

An expense reported in the income statement that reflects the estimated uncollectible accounts.

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78
Q

Accounts Receivable

A

The total amount of money owed to a business by its customers for goods or services sold on credit.

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79
Q

Writing Off Accounts Receivable

A

The process of removing an account balance from accounts receivable when it becomes clear that the customer will not pay.

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80
Q

Contra Asset

A

An account that reduces the value of a related asset account on the balance sheet.

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81
Q

Balance Sheet

A

A financial statement that reports a company’s assets, liabilities, and equity at a specific point in time.

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82
Q

Income Statement

A

A financial statement that shows a company’s revenues and expenses over a specific period, resulting in net income or loss.

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83
Q

Collectible Accounts

A

Accounts receivable that are expected to be collected from customers.

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84
Q

Uncollectible Accounts

A

Accounts receivable that are deemed unlikely to be collected from customers.

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85
Q

Total Accounts Receivable

A

The total amount of accounts receivable before any deductions for uncollectible accounts.

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86
Q

Estimated Bad Debt Expense

A

An estimate of the amount of accounts receivable that will not be collected, recorded as an expense.

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87
Q

Normal Credit Balance

A

The expected balance for accounts that typically carry a credit balance, such as liabilities and contra assets.

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88
Q

Accounts Receivable Carrying Value

A

The net amount of accounts receivable after subtracting the allowance for uncollectible accounts.

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89
Q

Example of Writing Off

A

On February 23, based on information about a former patient, Kimzey believes it is unlikely the patient will pay his account of $4,000.

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90
Q

Effect of Write-Off

A

The write-off of the account receivable has no effect on total amounts reported in the balance sheet or in the income statement.

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91
Q

Current Assets

A

Assets that are expected to be converted into cash or used up within one year.

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92
Q

Credit Sales

A

Sales made on credit, where payment is expected to be received at a later date.

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93
Q

Revenue from Credit Sales

A

The total income generated from sales made on credit during a specific period.

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94
Q

Other Operating Expenses

A

Expenses incurred in the normal course of business operations, excluding cost of goods sold and bad debt expense.

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95
Q

Net Income

A

The total profit of a company after all expenses, including bad debt expense, have been deducted from revenues.

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96
Q

Bad Debt Expense

A

An expense recorded when an account is deemed uncollectible, typically recorded in a prior year.

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97
Q

Writing Off an Account

A

The process of removing an uncollectible account from accounts receivable, which reduces both accounts receivable and the allowance for uncollectible accounts.

98
Q

Net Receivable

A

The amount of accounts receivable less the allowance for uncollectible accounts, which remains unchanged when an account is written off.

99
Q

Total Assets

A

The overall value of everything owned by the company, which remains unchanged when an account is written off.

100
Q

Collection on Accounts Previously Written Off

A

The process of receiving payment for an account that was previously written off as uncollectible.

101
Q

Journal Entry for Collection

A

The accounting entries made to record the collection of cash on an account previously written off.

102
Q

Allowance for Uncollectible Accounts

A

A contra asset account that estimates the portion of accounts receivable that is expected not to be collected.

103
Q

Concept Check 5-6

A

A set of statements regarding the effects of writing off an uncollectible account, indicating that total assets and net income remain unchanged.

104
Q

Adjusting the Allowance

A

The process of updating the allowance for uncollectible accounts in subsequent years based on expected credit sales and accounts receivable.

105
Q

Credit Sales

A

Sales made on credit, which totaled $80 million for Kimzey in 2025.

106
Q

Accounts Receivable

A

The total amount owed to a company by its customers, which was $30 million for Kimzey at year-end 2025.

107
Q

Percentage-of-Receivables Method

A

A method of estimating uncollectible accounts based on the percentage of accounts receivable expected not to be collected.

108
Q

Balance Sheet Method

A

Another name for the percentage-of-receivables method, as it bases estimates of bad debts on a balance sheet account.

109
Q

Aging Method

A

A method of estimating future bad debts based on the ages of individual accounts receivable, applying higher percentages to older accounts.

110
Q

Old Accounts

A

Accounts receivable that are less likely to be collected, thus assigned a higher percentage in the aging method.

111
Q

New Accounts

A

Accounts receivable that are more likely to be collected, thus assigned a lower percentage in the aging method.

112
Q

Journal Entry for Estimating Bad Debts

A

The accounting entry made to record the estimate of future bad debts, which is similar to that made using a single estimated percentage.

113
Q

Aging Method

A

A method to estimate uncollectible accounts that is more accurate than applying a single percentage to all accounts receivable.

114
Q

Uncollectible Accounts

A

Accounts that are not expected to be collected, often estimated using methods like the aging method.

115
Q

Accounts Receivable Aging Schedule

A

A schedule that categorizes accounts receivable based on the number of days they are past due.

116
Q

Estimated Percent Uncollectible

A

The percentage of accounts receivable that is estimated to be uncollectible based on aging.

117
Q

Total Accounts Receivable

A

$30,000,000, which includes all amounts owed to the company.

118
Q

Estimated Amount Uncollectible

A

The dollar amount estimated to be uncollectible, totaling $7,000,000 in this context.

119
Q

Allowance for Uncollectible Accounts

A

A contra asset account that reduces the total accounts receivable to reflect amounts expected to be collected.

120
Q

Year-end Adjustment

A

The adjustment made to the allowance for uncollectible accounts to ensure it reflects the estimated uncollectible amount.

121
Q

Bad Debt Expense

A

An expense that reflects the estimated uncollectible accounts for the period, amounting to $5 million in the income statement.

122
Q

Net Accounts Receivable

A

The total accounts receivable minus the allowance for uncollectible accounts, resulting in $23 million.

123
Q

Current Balance of Allowance

A

The balance of the allowance account at the beginning of the current year less actual write-offs in the current year.

124
Q

Write-offs

A

Amounts that are deemed uncollectible and are removed from accounts receivable.

125
Q

Concept Check 5-7

A

A question assessing understanding of the aging method, specifically that older accounts are less likely to be collected.

126
Q

Kimzey Medical Clinic

A

The entity used in the illustrations and examples regarding accounts receivable and uncollectible accounts.

127
Q

Revenue from Credit Sales

A

$80 million, representing total revenue generated from sales made on credit.

128
Q

Other Operating Expenses

A

$50 million, which are expenses incurred in the normal course of business operations.

129
Q

Net Income

A

$25 million, the profit remaining after all expenses have been deducted from revenue.

130
Q

Aging Method Accuracy

A

The aging method provides a more accurate estimate of total uncollectible accounts compared to using a single percentage.

131
Q

Days Past Due

A

The categorization of accounts based on how long they have been overdue.

132
Q

Estimated Amount Uncollectible by Age

A

Amounts estimated to be uncollectible based on aging: $1,600,000 for 1-60 days, $2,700,000 for 61-120 days, $2,000,000 for 120 days.

133
Q

Balance Sheet

A

A financial statement that summarizes the assets, liabilities, and equity of an entity at a specific point in time.

134
Q

Partial Balance Sheet

A

A section of a balance sheet that includes only specific accounts, such as accounts receivable and allowance for uncollectible accounts.

135
Q

Aging method

A

Recognizes that the longer accounts are past due, the less likely they are to be collected.

136
Q

Uncollectible accounts

A

Accounts that are unlikely to be collected due to age or other factors.

137
Q

Credit balance

A

Indicates that the balance of the allowance account may have been too high at the beginning of the year.

138
Q

Debit balance

A

Indicates that the balance of the allowance account may have been too low at the beginning of the year.

139
Q

Subsidiary ledger

A

Contains a group of individual accounts associated with a particular general ledger control account.

140
Q

Accounts receivable subsidiary ledger

A

Keeps track of all increases and decreases to individual customers’ accounts.

141
Q

Allowance for Uncollectible Accounts

A

A contra account with a credit balance that is reduced for actual bad debts.

142
Q

GAAP

A

Accounting principles generally accepted in the United States of America.

143
Q

Estimates and assumptions

A

Factors that affect the amounts reported in financial statements.

144
Q

Total accounts receivable

A

The sum of all individual accounts in the accounts receivable subsidiary ledger.

145
Q

Balance before adjustment

A

The total balance of the Allowance for Uncollectible Accounts prior to any year-end adjustments.

146
Q

Year-end adjustment

A

An adjustment made to the Allowance for Uncollectible Accounts at the end of the fiscal year.

147
Q

Write-offs

A

Amounts that are removed from the accounts receivable balance due to being deemed uncollectible.

148
Q

Credit balance of $2,000

A

Indicates that last year’s estimate of bad debts was too high.

149
Q

0-60 days

A

$1,238 million total for Indemnity, Managed Care, Self-Pay, Medicare, Medicaid, and Other.

150
Q

61-120 days

A

$366 million total for Indemnity, Managed Care, Self-Pay, Medicare, Medicaid, and Other.

151
Q

120-180 days

A

$233 million total for Indemnity, Managed Care, Self-Pay, Medicare, Medicaid, and Other.

152
Q

Over 181 days

A

$639 million total for Indemnity, Managed Care, Self-Pay, Medicare, Medicaid, and Other.

153
Q

Total

A

$2,476 million total for all categories listed.

154
Q

Estimated Bad Debts

A

The anticipated amount of accounts receivable that will not be collected, calculated as a percentage of total accounts receivable.

155
Q

Allowance for Uncollectible Accounts

A

A contra asset account that reduces the total accounts receivable to reflect only the amounts expected to be collected.

156
Q

Bad Debt Expense

A

An expense account that reflects the estimated uncollectible accounts for a given period.

157
Q

Direct Write-Off Method

A

An accounting method where bad debts are written off only when they are deemed uncollectible, not estimated in advance.

158
Q

Allowance Method

A

An accounting method that estimates bad debts in advance and records them as an expense in the same period as the related revenue.

159
Q

GAAP

A

Generally Accepted Accounting Principles, the standard framework of guidelines for financial accounting.

160
Q

Debit Balance

A

A balance that indicates an amount owed, typically in an expense or asset account.

161
Q

Credit Adjustment

A

An entry that increases a liability or equity account or decreases an asset or expense account.

162
Q

Accounts Receivable

A

Money owed to a company by its customers for goods or services delivered but not yet paid for.

163
Q

Actual Write-Off

A

The process of removing an uncollectible account from the accounts receivable ledger.

164
Q

Year-End Adjustment

A

An accounting entry made at the end of a financial period to update account balances.

165
Q

Uncollectible Accounts

A

Accounts receivable that are not expected to be collected due to customer insolvency or other reasons.

166
Q

Timing Difference

A

The difference in the timing of when bad debt expense is recognized between the allowance method and the direct write-off method.

167
Q

Write-Off Entry

A

The journal entry made to remove an uncollectible account from the books, typically involving a debit to Bad Debt Expense and a credit to Accounts Receivable.

168
Q

Percentage of Accounts Receivable

A

A method used to estimate bad debts based on a fixed percentage of total accounts receivable.

169
Q

Credit Balance

A

A balance that indicates an amount that is owed to the company, typically in a liability or equity account.

170
Q

Common Mistake in Accounting

A

The erroneous belief that bad debt expense should only be recorded when the bad debt actually occurs, rather than estimating it in advance.

171
Q

Adjustment Amount

A

The specific dollar amount that needs to be recorded to adjust an account balance, such as the $22,000 needed to adjust the Allowance for Uncollectible Accounts.

172
Q

Service on Account

A

Providing goods or services to a customer with the expectation of future payment.

173
Q

Debit to Bad Debt Expense

A

An accounting entry that increases the Bad Debt Expense account, reflecting the estimated uncollectible accounts.

174
Q

Credit to Allowance for Uncollectible Accounts

A

An accounting entry that increases the Allowance for Uncollectible Accounts, reflecting the estimated bad debts.

175
Q

Debit to Accounts Receivable

A

An accounting entry that increases the Accounts Receivable account, reflecting the amount owed by customers.

176
Q

Credit to Accounts Receivable

A

An accounting entry that decreases the Accounts Receivable account, reflecting the removal of an uncollectible account.

177
Q

Direct write-off method

A

The direct write-off method waits to reduce accounts receivable and record bad debt expense until accounts receivable prove uncollectible in the future.

178
Q

Overstatement of accounts receivable

A

This leads to accounts receivable being overstated in the current year.

179
Q

Acceptability of direct write-off method

A

The direct write-off method generally is not acceptable for financial reporting.

180
Q

Notes receivable

A

Notes receivable are assets.

181
Q

Classification of notes receivable

A

We classify notes receivable as either current or noncurrent, depending on the expected collection date.

182
Q

Long-term asset

A

If the time to maturity is longer than one year, the note receivable is a long-term asset.

183
Q

Face value of note

A

The face value of the note is $10,000.

184
Q

Due date of note

A

The due date of the note is six months after February 1, 2024.

185
Q

Interest rate

A

The interest rate on the note is 12%.

186
Q

Promissory note

A

A promissory note is a written promise to pay a specified amount of money at a specified time.

187
Q

Service revenue

A

Service revenue is recognized when services are provided, as in the case of Kimzey providing $10,000 of services.

188
Q

Reclassifying accounts receivable

A

When Justin signs the note, Kimzey records the transaction to reclassify the existing account receivable as a note receivable.

189
Q

Interest calculation

A

Interest on Kimzey’s note receivable is calculated as the face value multiplied by the annual interest rate multiplied by the appropriate fraction of the year.

190
Q

Interest for six-month note

A

The terms of the six-month note mean that Kimzey will charge Justin Payne one-half year of interest, or 6%, on the face value.

191
Q

Interest formula

A

Interest = Face value × Interest rate × Fraction of the year.

192
Q

Interest amount

A

The interest amount calculated for the note is $600.

193
Q

Fraction of the year

A

For a six-month note, the fraction of the year is 6/12.

194
Q

Formal credit arrangements

A

Notes receivable are similar to accounts receivable except that notes receivable are formal credit arrangements made with a written debt instrument, or note.

195
Q

Notes Receivable

A

A financial asset representing a written promise for a borrower to pay a specified amount of money at a future date.

196
Q

Interest Revenue

A

The income earned from interest on notes receivable, calculated based on the principal amount, interest rate, and time period.

197
Q

Accrued Interest

A

Interest that has been earned but not yet received in cash or recorded in the financial statements.

198
Q

Interest Receivable

A

An asset account that represents interest that has been earned but not yet collected.

199
Q

Collect Note Receivable and Interest

A

The process of receiving payment for the principal and interest of a note receivable at maturity.

200
Q

Maturity Date

A

The date on which the principal amount of a note receivable is due to be paid.

201
Q

Face Value

A

The nominal value of a note, which is the amount that the borrower agrees to pay back.

202
Q

Interest Calculation Formula

A

Interest revenue = Principal × Interest Rate × Time Period.

203
Q

Adjusting Entry

A

An accounting entry made at the end of an accounting period to allocate income and expenses to the correct period.

204
Q

Collection Entry

A

The journal entry made to record the collection of cash for a note receivable and its interest.

205
Q

Average Collection Period

A

The average number of days it takes a company to collect its accounts receivable.

206
Q

Receivables Turnover Ratio

A

A financial ratio that measures how many times a company collects its average accounts receivable during a period.

207
Q

Interest Revenue for 2024

A

Interest Revenue = $5,000 × 6% × 4/12 = $100.

208
Q

Interest Revenue for 2025

A

Interest Revenue = $5,000 × 6% × 6/12 = $150.

209
Q

Principal Amount

A

The original sum of money borrowed or invested, excluding any interest or additional fees.

210
Q

Interest Rate

A

The percentage of the principal amount charged as interest over a specified period.

211
Q

Time Period

A

The duration for which interest is calculated, typically expressed in years or fractions of a year.

212
Q

Collecting Interest

A

The process of receiving payment for interest that has accrued on a note receivable.

213
Q

Accrual of Interest Revenue

A

Recording interest revenue that has been earned but not yet received in cash.

214
Q

Note Issued Date

A

The date on which a note receivable is created and the borrower receives the funds.

215
Q

Note Due Date

A

The date on which the borrower must repay the principal and any accrued interest.

216
Q

Interest Revenue from 2024

A

Interest Revenue = $10,000 × 12% × 2/12 = $200.

217
Q

Interest Revenue from 2025

A

Interest Revenue = $10,000 × 12% × 4/12 = $400.

218
Q

Full Amount Owed

A

The total sum that includes both the principal and any accrued interest that must be repaid by the borrower.

219
Q

Receivables Turnover Ratio

A

$18,479 ÷ $2,669 = 6.9

220
Q

Average Collection Period (Tenet Healthcare)

A

365 ÷ 6.9 = 52.9

221
Q

Receivables Turnover Ratio (CVS Health)

A

$256,776 ÷ $18,624 = 13.8

222
Q

Average Collection Period (CVS Health)

A

365 ÷ 13.8 = 26.4

223
Q

Higher receivables turnover

A

Tenet Healthcare has a higher receivables turnover compared to CVS Health.

224
Q

Shorter collection period

A

Tenet Healthcare has a shorter collection period compared to CVS Health.

225
Q

Efficient cash collection

A

Tenet Healthcare more efficiently collects cash from patients.

226
Q

Accounts Receivable Turnover of 10

A

The average collection period is computed as 365 divided by the accounts receivable turnover of 10 (= 36.5 days).

227
Q

Percentage-of-Credit-Sales Method

A

Estimating uncollectible accounts using a percentage of credit sales.

228
Q

Estimate of Uncollectible Accounts (Credit Sales)

A

10.0% of credit sales in 2025 year will not be collected.

229
Q

Estimate of Uncollectible Accounts (Receivables)

A

20% of Accounts Receivable at the end of 2025 will not be collected.

230
Q

Bad Debt Expense Adjustment (Credit Sales)

A

Bad Debt Expense = 8, Allowance for Uncollectible Accounts = 8

231
Q

Bad Debt Expense Adjustment (Receivables)

A

Bad Debt Expense = 4, Allowance for Uncollectible Accounts = 4

232
Q

Income Statement Effect (Percentage-of-Credit-Sales)

A

Revenues = $80, Bad debt expense = (8), Net income = $72

233
Q

Income Statement Effect (Percentage-of-Receivables)

A

Revenues = $80, Bad debt expense = (4), Net income = $76

234
Q

Balance Sheet Effect (Percentage-of-Credit-Sales)

A

Accounts receivable = $30, Less: Allowance = (6), Net accounts receivable = $24

235
Q

Balance Sheet Effect (Percentage-of-Receivables)

A

Accounts receivable = $30, Less: Allowance = (10), Net accounts receivable = $20

236
Q

Adjustment for Uncollectible Accounts

A

Adjust the allowance for uncollectible accounts for the current year’s credit sales that we don’t expect to collect.

237
Q

Adjusting Entry for Bad Debts

A

The adjusting entry includes a debit to Bad Debt Expense and a credit to Allowance for Uncollectible Accounts.

238
Q

Bad Debt Estimate Calculation

A

The adjustment equals $500,000 × 4% = $20,000.

239
Q

Accounts Receivable Balance

240
Q

Allowance for Uncollectible Accounts Balance

A

$2,000 (credit)

241
Q

Credit Sales Amount