Chapter 8: Accounting for Receivables Flashcards
Define accounts receivable
The current asset resulting from a sale or service executed on a credit basis
Will a business always get the full amount of cash on a credit basis?
No, businesses prepare to lose some revenue.
What kind of expense is the lost of money from credit basis (credit loss) considered?
Operating expense
Is the operating expense from credit loss debited or credited? And to which account?
Debited to bad debt expense
The GAAP requires an estimate of bad debt expenses. Which principle is this an example of?
Matching principle
How does a business write an estimate of bad debt expenses?
They off set it with the “allowance method”
What is the allowance method?
The process of estimating bad debt expense. Bad debt expenses is debited while allowance for doubtful accounts is credited
How does allowance for doubtful accounts fit the accounting equation?
It is subtracted from gross accounts to yield a net amount
When is a receivable written-off?
A) After it’s paid off
B) When the transaction is made (before payment)
C) When it is canceled from the buyer
D) When the company concludes the amount will not be collected
D) When the company concludes the amount will not be collected
How does writing off a receivable affect the journal entries?
It will not affect expenses or total assets.
Will clean up accounts receivable account
How do you write off an account deemed uncollectible? (Credit/Debit)
Debit allowance for doubtful accounts
Credit accounts receivable
How to record a bad debt expense for the year?
Debit bad debt expense
Credit allowance for doubtful accounts
Sometimes an account written off will be later collected. What 2 things must be recorded?
- Reverse the original write-off
- Collect the cash
How to you journal a reinstated accounts?
Debit accounts receivable
Credit doubtful accounts
How do you record a receivable account paid back in cash?
Debit cash
Credit accounts receivable
