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
Because the percentage of receivables method focuses on determining the best estimate of the allowance balance, it is often called the __ __ approach.
balance sheet
Disadvantages of using the direct write-off method of recognizing uncollectible accounts expense include ______.
Select as many as possible.
assets are overstated
estimates cannot be based on aging
expenses are not matched with revenue
the method is simple to implement
assets are overstated
expenses are not matched with revenue
Investing in a note receivable (loaning money) does not affect the ______.
statement of cash flows
balance sheet
income statement
income statement
asset exchange
When the allowance method is used, the write-off of uncollectible accounts receivable ______ total assets.
does not change
will increase
will decrease
does not change
Assets are reported on the balance sheet in order of their ___
liquidity
When a company extends credit for a long period of time, the parties frequently enter into a credit agreement, the terms of which are legally documented in a(n) __ __
promissory note
When a company accepts a credit card with a fee for services rendered, Accounts Receivable ______.
and Credit Card Expense and Service Revenue are all decreased
and Service Revenue increase and Credit Card Expense decreases
and Credit Card Expense decrease, and Service Revenue increases
and Credit Card Expense and Service Revenue are all increased
and Credit Card Expense and Service Revenue are all increased
Investing in a note receivable (loaning money) is a(n) ______ transaction.
asset exchange
asset source
claims exchange
asset use
asset exchange
The accounts receivable turnover ratio = ______.
cost of goods sold÷average accounts receivable
net income÷average accounts receivable
total assets÷average accounts receivable
sales÷average accounts receivable
sales÷average accounts receivable
How quickly assets are expected to be converted to cash during normal operations is referred to as
liquidity
The average time it takes a business to convert inventory to accounts receivable plus the time it takes to convert accounts receivable into cash is known as the __ __
operating cycle
Companies generally charge interest on ______ receivable.
neither notes nor accounts
only notes
both notes and accounts
only accounts
only notes
Frost Company accepted a credit card payment for $6,000 of services provided to a customer. If the credit card fee is 5% of sales, the Accounts Receivable account will be increased by $ __ and the Service Revenue account will be increased by $ __
5,700
6,000
Given current assets of $700,000, average accounts receivable of $160,000, credit sales of $1,500,000, cost of goods sold of $900,000 and net income of $100,000, the accounts receivable turnover ratio is ______.
- 60
- 38
- 63
- 38
9.38
Company A has an operating cycle of 43 days and Company B has an operating cycle of 97 days. If Company B pays 6% to finance its $720,000 investment in inventory, the longer operating cycle reduced Company B’s earnings by $ __
6,391
The average time it takes a business to convert inventory to accounts receivable plus the time it takes to convert accounts receivable into cash is known as the __ __
operating cycle
