chapter 7 reading

Question 1

receivable

Answer 1

amount due from another party

Question 2

what are two common receivables

Answer 2

notes and account receivables

Question 3

account receviable

Answer 3

amounts due from customers for credit sales

Question 4

credit sales are recorded how

Answer 4

by increasing (debiting) A/R

Question 5

what is the single A/R accont in general ledger called

Answer 5

control account

Question 6

supplementary record

Answer 6

has a seperate account for each customer and is called A/R ledger

Question 7

reasons sellers allow customers to use credit and debit

Answer 7

1)seller does not have to decide who gets credit and how much
2) seller avoids risk of customer not paying (risk transferred to credit card company)
3)seller receives cash very soon
4) more credit options = more sales

Question 8

what do sellers pay when card is used

Answer 8

pays a fee that reduces sellers cash received

Question 9

what do sellers expect when a company directly grants credit to customers

Answer 9

expects some customers will not pay what they promused

Question 10

what are the accounts called for when company expects customers to not pay what they promused

Answer 10

uncolletible accounts or bad debts

Question 11

company belives that granting credit will what

Answer 11

increase total sales enough to offset bad debts

Question 12

what are two methods for uncollectible accounts

Answer 12

1)direct write off method
2)allowance method

Question 13

what is direct write off method

Answer 13

records loss from uncollectible A/R whne ut is determined ti ve uncolletbible. no attempt is made to predict bad debts expense

Question 14

what type of companies use direct write off method

Answer 14

publicly traded companies and private held companies

Question 15

what are two things companies consider when using direct write off method

Answer 15

1)expense recognition
2) materiality constraint

Question 16

expense recognition

Answer 16

requires expenses be reported in same period as sales they helped produce

Question 17

materality constraint

Answer 17

permits use of dreict write of method

Question 18

advantages of direct write off method

Answer 18

-simple
-no estimates needed

Question 19

disadvanatges of direct write off method

Answer 19

-receivables and income temporarily overstated
-bad debts expense often not matched with sales

Question 20

allowance method

Answer 20

for bad debts matches estimated loss from uncollectible A/R against the sales they helped produce

Question 21

why use estimated losses

Answer 21

because when sales occur sellers do not know which customers will not pay

Question 22

at end of each period what does allowance method require

Answer 22

estimate or total bad debts expected from that days sales

Question 23

what are the two advatages of allowance method over direct write off

Answer 23

1) records estimated bad debts expense in the period when related sales are recorded
2)it reports A/R on the balance sheet at the estimated amount to be collected

Question 24

allowance for doubtful accounts is what type of account

Answer 24

contra account

Question 25

allowance method advanatges

Answer 25

-receivables fairly stated
-bad debts expense matched with sales
-writing off bad debt does not effect net receivables or income

Question 26

disadvantages of allowance method

Answer 26

-estimates needed

Question 27

realizable value

Answer 27

amount expected to be recieved

Question 28

what do adjusting entries add to

Answer 28

add to allownace for doubtful accounts

Question 29

what do bad debt write offs subtract from

Answer 29

subtract from allowance for doubtful accounts

Question 30

% A/R assumes what

Answer 30

assumes % of company’s receibables is uncollectible (% is based on economic trends)

Question 31

aging A/R method

Answer 31

applies like % A/R but several % are used to estimate allownace

Question 32

promissory note

Answer 32

written promse to pay specified amount with interest

Question 33

interest

Answer 33

charge for using the money until it is due day

Question 34

to borrower interest is a

Answer 34

expense

Question 35

to lender interest is

Answer 35

revenue

Question 36

maturity date of note

Answer 36

day the note must be repaid

Question 37

account receivable turnover

Answer 37

net sales/avg A/R,net