Chapter 8

Question 1

Two Allowance Methods Acceptable Under GAAP

Answer 1

1. -aging accounts receivable
   - % of receivables or balance sheet approach

2.% of credit sales(not responsible for)

Question 2

Adjusting entry for bad debt expense and allowances for bad debt

Answer 2

Dr: Bad Debt Expense
Cr: Allowance for Bad Debt

Question 3

Synonyms for Bad Debt

Answer 3

• uncollectible accounts

- doubtful accounts

Question 4

Bad Debt Expense

Answer 4

-tells us the estimated amount of accounts we think will be uncollectible related to this period’s revenue and is on the income statement

Question 5

The older the the invoice……

Answer 5

the more likely it is to be not collectible

Question 6

Net Realizable Value=

Answer 6

Gross Accounts receivable minus allowance for bad debts

Question 7

What type of expense is bad debt?

Answer 7

non cash expense

Question 8

Principles of A/R management

Answer 8

• determine to whom to extend credit
• determine a payment period
• monitor collections
• evaluate liquidity of receivable
• accelerate cash receipts from customers

Question 9

Accelerate cash receipts from customers and points

Answer 9

• offer credit terms 2/10, n30
• sell accounts receivable= selling notes receivable= discounting
• customers can use bank credit cards like VISA, MasterCard,Discover, american Express

Question 10

Amount needed in the ending balance for the allowance for bad debt account

Answer 10

Amount in Account Receivable* %Uncollectible

Question 11

The Journal Entry for Write-Off

Answer 11

Dr: Allowance for B/D
Cr: Accounts Receivable

Question 12

Discuss the direct-write off method?

Answer 12

direct write off method is for taxes only

• it is not GAAP
• there will be a difference between net income on income statement and that on tax return

Question 13

what is the formula for NRV?

Answer 13

accounts receivable

Less: allowance for B/D