Chapter 7 Flashcards
The face value of accounts receivable less an allowance for doubtful accounts equal __ __ value of accounts receivable.
net realizable
JVL Inc. estimates that 3% of revenue will be uncollectible. If revenue for the year totals $56,300, the uncollectible account expense estimate will be $ ___
1,689
56,300-3%
The Allowance for Doubtful Accounts appears on the ______.
income statement
statement of cash flows
statement of changes in stockholders’ equity
balance sheet
balance sheet
When the allowance method is used, the write-off of uncollectible accounts receivable ______ total assets.
does not change
will decrease
will increase
does not change
On December 31, Year 2 before making adjustments, the Accounts Receivable account had a $20,000 balance and the Allowance for Doubtful Accounts account had a $300 balance. If the company estimates uncollectible accounts to be 5% of accounts receivable, the amount of uncollectible accounts expense shown on the Year 2 income statement is ______.
$700
Reason: Ending balance in the Allowance for the Doubtful Accounts account = $20,000 x 5% = $1,000. Since the Allowance for the Doubtful Accounts account currently has a $300 balance, $700 of expense must be added to the account.
The net realizable value of receivables equals ______.
accounts payable plus the allowance for doubtful accounts
accounts payable minus the allowance for doubtful accounts
accounts receivable minus the allowance for doubtful accounts
accounts receivable plus the allowance for doubtful accounts
accounts receivable minus the allowance for doubtful accounts
Which of the following statements about aging accounts receivable is true?
Higher percentages are applied to older accounts.
An existing balance in the Allowance for Doubtful Accounts account is ignored when determining uncollectible accounts expense.
The total of the aging schedule represents the amount of uncollectible accounts expense.
Newer accounts are less likely to be collected.
Higher percentages are applied to older accounts.
Reason: 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.
Under the allowance method, the journal entry to recognize uncollectible accounts expense is made ______.
at the beginning of the accounting period
when an account receivable is determined to be uncollectible
at the end of the accounting period
when sales occur
at the end of the accounting period
True or false: The percent of revenue method provides a more acceptable result for estimating uncollectible accounts expense than the percent of receivables approach.
False
When a company recognizes uncollectible accounts expense, the amount of ______.
Select as many as possible
total assets decrease
total liabilities increase
net income decreases
total equity decreases
total assets decrease
net income decreases
total equity decreases
Which of the following statements is true?
The primary advantage of using the direct write-off method of recognizing the uncollectible accounts expense is simplicity.
Companies with large amounts of uncollectible accounts normally use the direct write-off method to account for uncollectible accounts expenses.
Only banks are permitted to use the direct write-off method.
The direct write-off method is used to ensure the matching of expenses with revenue.
The primary advantage of using the direct write-off method of recognizing the uncollectible accounts expense is simplicity.
Reason: The direct method does not require the use of estimates and an associated allowance account. Instead, it recognizes uncollectible accounts expense when it occurs, thereby simplifying the record-keeping process.
When the allowance method is used, the write-off of uncollectible accounts receivable ______.
impacts all the financial statements
has no net effect on the financial statements
impacts the balance sheet and income statement only
decreases cash flow from operating activities
has no net effect on the financial statements
Reason: The net realizable value of accounts receivable remains unchanged
On December 31, Year 2 before making adjustments, the Accounts Receivable account had a $20,000 balance and the Allowance for Doubtful Accounts account had a $300 balance. If the company estimates uncollectible accounts to be 5% of accounts receivable, the net realizable value of receivables shown on the Year 2 balance sheet is ______.
$700
$1,000
$20,000
$19,000
$19,000
Reason: 20,000-1,000 = 19,000
The longer an account receivable remains outstanding, the ______ likely it is to be collected.
more
less
less
Companies generally charge interest on ______ receivable.
only accounts
both notes and accounts
only notes
neither notes nor accounts
only notes
