Final exam, ch. 8

Question 1

Receivables

Answer 1

Amounts due from individuals and companies, expected to be collected in cash, one of the company’s largest and most liquid assets

Question 2

3 types of receivables

Answer 2

Accounts receivable, notes receivable, other receivables

Question 3

Accounts receivable

Answer 3

Result from sale of goods, expected to be collected within 30-60 days

Question 4

Notes receivable

Answer 4

Written promise for amounts to be received, usually 60-90 days or longer

Question 5

Other receivables

Answer 5

Interest receivable, loans to company officers, advances to employees, income tax refundable

Question 6

Accounting issues with accounts receivable

Answer 6

Recognizing A/R, valuing A/R

Question 7

Journal entry to record sales on account

Answer 7

Dr. Accounts receivable

Cr. Service revenue

Question 8

Journal entry to record merchandise returned

Answer 8

Dr. Sales returns and allowances

Cr. Accounts receivable

Question 9

Journal entry to record collection of accounts

Answer 9

Dr. Cash

Dr. Sales discounts

Cr. Accounts receivable

Question 10

Bad debt expense

Answer 10

Losses that result from extending credit

Question 11

2 methods for uncollectible accounts

Answer 11

Direct write-off method, allowance method

Question 12

Journal entry to record write-off

Answer 12

Dr. Bad debt expense

Cr. Accounts receivable

Question 13

Issue with write-off method

Answer 13

No adjustment for estimated losses, not GAAP

Question 14

Allowance method

Answer 14

Estimating uncollectible accounts at the end of the period

Question 15

Cash realizable value

Answer 15

Net amount a company expects to receive in cash from receivables

Question 16

3 features of allowance method

Answer 16

1. Estimated uncollectible accounts are matched against revenues
2. Debit bad debt expense, credit ADFA as adjusting entry
3. Debit ADFA, credit A/R when specific account is written off as incollectible

Question 17

What kind of expense is bad debt expense?

Answer 17

Operating expense

Question 18

Journal entry for recovery of an uncollectible Account

Answer 18

Dr. A/R

Cr. AFDA

Dr. Cash

Cr. A/R

Question 19

Percentage-of-receivables basis

Answer 19

Estimate percentage of uncollectibles and deduct from A/R

Question 20

Aging the accounts receivable

Answer 20

Schedule listing how long payments are overdue

Question 21

Promissory note

Answer 21

Written promise to pay a specified amount of money on demand or at a definite time

Question 22

Maker

Answer 22

Party making the promise

Question 23

5 issues in accounting for notes receivable

Answer 23

1. Determining the maturity date
2. Computing interest
3. Recognizing notes receivable
4. Valuing notes receivable
5. Disposing of notes receivable

Question 24

3 ways to state the maturity date of a promissable note

Answer 24

1. On demand
2. On a stated date
3. At the end of a stated period of time

Question 25

Interest computation

Answer 25

Face value of note x Annual interest rate x Time in terms of one year = Interest

Question 26

Recognizing notes receivable

Answer 26

Dr. Notes receivable

Cr. Accounts receivable

Question 27

Accounts receivable turnover

Answer 27

Net credit sales/ Average net accounts receivable

Question 28

Average collection period

Answer 28

365/ Accounts receivable turnover

Question 29

Factor

Answer 29

Finance company or bank that buys receivables from businesses for a fee and then collects the payments directly from the customers