Exam 4 Flashcards
What is the Allowance Method of Accounts Receivable? (2)
- matches bad debts expense with sales for the period
- reports accounts receivable at estimated realizable value.
What is the Direct Write-Off Method of Accounts Receivable?
records loss at the time it is determined uncollectible
How do you journalize bad debts (multiple accts) using the allowance method?
debit bad debts expense
credit allowance for doubtful
How do you journalize write offs for specific accounts receivable using the allowance method? (what is debited vs credited)
debit allowance for doubtful
credit specific account in the accts receivable
How do you journalize write offs of specific accounts receivables using the direct write off method? (what is debited vs credited)
debit bad debts expense
credit specific account in the accts receivable
What type of account is the Allowance for Uncollectible accounts?
Contra asset account
How is the Allowance for Uncollectible accounts reported on the balance sheet? (where is it, debit or credit?)
it goes right below the accounts receivable section in assets, and is credited.
How do you compute the Net Realizable Value of an item? (Formula)
expected selling price of item - cost of making sale
Who is the maker of a promissory note?
Person who signs a note and promises to pay it at maturity
Who is the holder of a promissory note?
The business who is receiving payments
What is the face value of a promissory note?
Principle ammount
What is the formula to compute interest?
principle x interest x (days/360)
What is the formula for Accounts Receivable turnover?
Net Sales / average accts rec.
What costs should be capitalized and where do you record them? (Capital Expenditures)
improvements that last more than the current period, balance sheet
What costs should be expensed and where do you record them? (Revenue Expenditures)
costs that do not increase the assets life or capabilities, income statement
What is included in the land costs?
land and costs necessary to make it ready for intended use
What is included in the building costs?
cost of purchasing or constructing a building that is used in operations
What is included in the equipment costs?
All costs necessary to prepare them for the intended use
What is depreciation?
expense of using the asset within any given year
What is the salvage value of a piece of equipment?
An assets expected value at the end of its useful life
How do you compute straight line depreciation? (formula)
(Cost - salvage value) / years of useful life
How do you compute the Units of Production depreciation? (2 steps)
- Find Depreciation per unit (cost-salvage value)/total units
2.Depreciation per unit x units in that year
Why would an expenditure be capitalized vs expensed?
Capitalized: increases the useful life of the asset Expensed: does not increase the useful life
How do you compute the book value of an asset? (Formula)
Original cost - accumulated depreciation
How do you compute gain or loss on an asset? (what journal categories and debit vs credit)
Cash (debit)
Accumulated Depreciation (Debit)
Loss or gain (depends on gain or loss)
Equipment (credited)
How do you compute good will? (Formula)
purchase price of a company - value of the assets and liabilities
What kind of expense is depreciated?
Machinery and Equipment
What kind of expense is amortized?
an intangible assets
