Quiz 3 (chpt. 8)

Question 1

Gross profit

Answer 1

Gross profit rate= gross profit/Net Sales

Question 2

Bad Debt

Answer 2

When someone doesn’t pay you back when they buy on credit –> this then becomes the companies expense

Question 3

Direct Write

Answer 3

Goes against the matching principal (by using direct write-off) So can’t use Direct Write off

Question 4

Allowance Method

Answer 4

Estimate for those uncollectable bad debt, don’t wait until bad debit happens make an accrual allowance based on how much bad debit you will have so you can account for it in the same year

Question 5

Allowance for Doubtful Accounts

Answer 5

Contra Account

Question 6

How to write off the accounts

Answer 6

You debit the account that you previously credited when you find out that some accounts wont be receivable
AFDA XX
A/R XX

Question 7

Income Statement Approach/
% of Sales

Answer 7

Estimated Bad Debt Expense = % x Sales
-not super accurate
-sales=credit sales/net sales/gross sales

Question 8

% of Receivables : Balance Sheet Approach

Answer 8

step 1:
Estimated AFDA Bal after Bad debt adjustment= % x A/R
step 2:
Bad Debt Expense = Estimated AFDA Bal after Bad debt adjustment - Estimated AFDA Bal before Bad debt adjustment

Question 9

Accounts Receivable Turnover

Answer 9

A/R turnover = Net Sales/ Avg A/R

Question 10

Days to collect A/R

Answer 10

Days to collect A/R = 365/A/R Turnover

Question 11

When does AFDA have a debit balance?

Answer 11

If you accrual too little for Bad Debts

Question 12

Net Sales

Answer 12

Net Sales= Gross sales-(Sales Discount)-(Sales, returns and Allowances)