Deck 8: Reporting and Analyzing Receivables

Question 1

Under the aging method of estimating the allowance for doubtful accounts, the balance in the allowance account must be considered prior to adjusting for estimated uncollectible accounts.

Answer 1

True

Question 2

Accounts receivable can be the result of either cash or credit sales.

Answer 2

False

Question 3

A note receivable is a written promise by the maker to the payee to pay a specified amount of money at a definite time.

Answer 3

True

Question 4

Both accounts receivable and notes receivable represent claims that are expected to be collected in cash.

Question 5

When posting is up-to-date, the balance in the accounts receivable subsidiary ledger must equal the balance in the general ledger.

Question 6

The Allowance for Doubtful Accounts is a liability account and has a normal credit balance.

Question 7

Atlas Inc.borrowed money from a bank; therefore, it is regarded as the payee.

Question 8

Interest income is never earned on accounts receivable.

Question 9

Other receivables include nontrade receivables such as loans to company officers.

Question 10

The percentage of receivables basis of estimating uncollectible accounts ignores the existing balance in the allowance account when the bad debts adjusting entry is recorded.

Question 11

It is possible for the allowance account to have a debit balance before the year-end adjusting entry is recorded.

Question 12

An aging of accounts receivable schedule is based on the premise that the longer the period an account remains unpaid, the greater the probability that it will eventually be collected.

Question 13

Advances to employees are a type of accounts receivable.

Question 14

The two key parties to a note are the maker and the payee.

Question 15

Allowance for Doubtful Accounts is credited when an account is determined to be uncollectible.

Question 16

Receivables are considered financial assets.

Question 17

Bad Debts Expense is a contra account to the Sales account.

Question 18

Uncollectible accounts must be estimated because it is not possible to know which accounts will not be collected.

Question 19

The carrying amount of Accounts Receivable is determined by adding the Allowance for Doubtful Accounts to Accounts Receivable.

Question 20

Allowance for Doubtful Accounts is a contra account that is deducted from Accounts Receivable on the statement of financial position.

Question 21

If eventual collection is expected after a note has been dishonoured an accounts receivable replaces the note including any unpaid interest.

Question 22

A critical part of managing receivables is determining who should be extended credit and who should not.

Question 23

Uncollectible notes receivable should be estimated at year end and recorded as a debit to Bad Debts Expense and a credit to Notes Receivable.

Question 24

The receivables turnover should be analyzed in conjunction with other ratios such as the current ratio and inventory turnover.

Question 25

The average collection period is frequently used to assess the effectiveness of a company's credit and collection policies.

Question 26

Which of the following statements is false?

A)A subsidiary ledger is a group of accounts that provides details about a control account in the general ledger.
B)When a subsidiary ledger and a control account are used, each journal entry that affects accounts receivable must be posted twice.
C)The balance in the control account must always equal the total of the subsidiary ledger.
D)A subsidiary ledger includes supporting detail to the general ledger.

Question 27

When the due date of a note is stated in months, the time factor in calculating interest, if it is due monthly, is the number of months divided by 12.

Question 28

Trade receivables
(a)occur when two companies trade or exchange notes receivables.
(b)can be accounts receivable or notes receivable.
(c)include employee advances.
(d)do not result from the operations of the business.

Question 29

Which of the following receivables would not be classified as an "other receivable"?

A)advance to an employee
B)refundable income tax
C)notes receivable
D)interest receivable

Question 30

Under the allowance method for uncollectible accounts,
(a)bad debts expense is not recorded until a customer defaults.
(b)the entry to write off an uncollectible account only involves statement of financial position accounts.
(c)allowance for doubtful accounts increases, while accounts receivables decrease when writing off an uncollectible account.
(d)bad debt expense increases, while allowance for doubtful accounts decreases when writing off an uncollectible account.

Question 31

Both the gross amount of receivables and the Allowance for Doubtful Accounts must be reported either in the statement of financial position or notes to the financial statements.

Question 32

Trade receivables
(a)do not result from the operations of the business.
(b)are employee advance transactions.
(c)are loans to company officers.
(d)are the result of sales transactions.

Question 33

The receivable that is usually evidenced by a formal instrument of credit is a(n)
(a)trade receivable.
(b)note receivable.
(c)account receivable.
(d)income tax receivable.

Question 34

To find the balance due from an individual customer, the accountant would refer to the
(a)General Journal.
(b)Sales account in the general ledger.
(c)Accounts Receivable subsidiary ledger.
(d)Accounts Receivable account in the general ledger.

Question 35

The carrying amount of accounts receivable
(a)is the amount at which the receivables less the allowance for doubtful accounts are presented on the statement of financial position.
(b)reflects the sum of accounts receivable and the allowance for doubtful accounts.
(c)is the amount at which the receivables are presented on the statement of financial position.
(d)reflects management's estimate of the receivables that will ultimately not be collected after expected credit losses.

Question 36

Notes or accounts receivables that result from sales transactions are often called
(a)sales receivables.
(b)nontrade receivables.
(c)trade receivables.
(d)merchandise receivables.

Question 37

Interest on a 3-month, 3%, $20,000 note is calculated by multiplying $20,000 * 3% * 3.

Question 38

A receivable is recognized
(a)when the sales effort is substantially complete.
(b)regardless of collection risk.
(c)only when payment has been received.
(d)when a service is performed.

Question 39

The term "receivables" refers to
(a)amounts due from individuals or companies.
(b)merchandise to be collected from individuals or companies.
(c)cash to be paid to creditors.
(d)cash to be paid to debtors.

Question 40

Receivables are generally valued and reported in the statement of financial position at their gross amount less the allowance for doubtful accounts.

Question 41

Under the allowance method for uncollectible accounts, writing off an uncollectible account
(a)affects only statement of financial position accounts.
(b)affects both statement of financial position and statement of income accounts.
(c)affects only statement of income accounts.
(d)affects either statement of financial position or statement of income accounts.

Question 42

The net amount expected to be received in cash from receivables is termed the
(a)carrying amount.
(b)fair value.
(c)gross cash value.
(d)cash-equivalent value.

Question 43

If a company fails to record estimated bad debts expense, then
(a)the carrying amount is understated.
(b)expenses are understated.
(c)revenues are understated.
(d)receivables are understated.

Question 44

Estimated uncollectible accounts are recorded as a debit to
(a)Allowance for Doubtful Accounts.
(b)Bad Debts Expense.
(c)Sales.
(d)Accounts Receivable.

Question 45

If the amount of bad debts expense is understated at year end, then
(a)net income will be understated.
(b)shareholders' equity will be understated.
(c)Allowance for Doubtful Accounts will be overstated.
(d)net Accounts Receivable will be overstated.

Question 46

Under the allowance method for uncollectible accounts,
(a)the recovery of an account receivable previously written off results in a credit to the Bad Debt Expense account.
(b)Bad Debts Expense is debited when an account is deemed uncollectible and must be written off.
(c)the carrying value of receivables is the same both before and after an account has been written off.
(d)the carrying amount of receivables is the same both before and after an account that had previously been written off is recovered.

Question 47

Under the allowance method for uncollectible accounts, Bad Debts Expense is recorded
(a)when an individual account is written off.
(b)when the amount of loss is known.
(c)for an amount that the company estimates as uncollectible.
(d)several times during the accounting period.

Question 48

The account Allowance for Doubtful Accounts is necessary because
(a)when recording bad debts expense, it is not possible to know which specific accounts will default.
(b)uncollectible accounts that are written off must be accumulated in a separate account.
(c)a liability results when a credit sale is made.
(d)management needs to accumulate all the credit losses over the years.

Question 49

An aging of a company's accounts receivable indicates that $4,200 is estimated to be uncollectible.If Allowance for Doubtful Accounts has a $800 credit balance, the adjustment to record bad debts for the period will require a
(a)debit to Bad Debts Expense for $4,200.
(b)debit to Allowance for Doubtful Accounts for $3,400.
(c)debit to Bad Debts Expense for $3,400.
(d)credit to Allowance for Doubtful Accounts for $5,000.

Question 50

A debit balance in the Allowance for Doubtful Accounts
(a)is the normal balance for that account.
(b)indicates that actual bad debt write offs for the period are higher than previous provisions for bad debts.
(c)indicates that actual bad debt write offs for the period have been less than what was estimated.
(d)cannot occur if the percentage of receivables method of estimating bad debts is used.

Question 51

Bad Debts Expense is considered
(a)an avoidable cost in doing business on a credit basis.
(b)an internal control weakness.
(c)a necessary risk of doing business on a credit basis.
(d)avoidable unless there is a recession.

Question 52

Under the allowance method of accounting for uncollectible accounts, Bad Debts Expense is debited
(a)when a credit sale is past due.
(b)at the end of each accounting period.
(c)whenever a pre-determined amount of credit sales has been made.
(d)when an account is determined to be uncollectible.

Question 53

The Allowance for Doubtful Accounts is shown under
(a)Expenses on the statement of income.
(b)Revenue on the statement of income.
(c)Current Liabilities on the statement of financial position.
(d)Current Assets on the statement of financial position.

Question 54

Writing off an uncollectible account involves
(a)a debit to Bad Debts Expense.
(b)a debit to Allowance for Doubtful Accounts.
(c)a debit to Refund Liability.
(d)a debit to Accounts Receivable.

Question 55

The collection of an account that had been previously written off under the allowance method for uncollectible accounts
(a)increases net income in the period it is collected.
(b)decreases net income in the period it is collected.
(c)requires a correcting entry for the period in which the account was written off.
(d)does not affect net income in the period it is collected.

Question 56

When the allowance method is used to account for uncollectible accounts, Bad Debts Expense is debited when
(a)a sale is made.
(b)an account becomes uncollectible and is written off.
(c)management estimates the amount of uncollectible accounts.
(d)a customer's account becomes past due.

Question 57

The collection of an account that had been previously written off under the allowance method for uncollectible accounts
(a)increases net income in the period of collection.
(b)involves a credit to Bad Debts Expense.
(c)usually requires two journal entries.
(d)is recorded by debiting Cash and crediting Bad Debts Expense.

Question 58

When an account becomes uncollectible and must be written off
(a)Allowance for Doubtful Accounts should be credited.
(b)Accounts Receivable should be credited.
(c)Bad Debts Expense should be credited.
(d)Sales should be debited.

Question 59

Accounts receivable are valued and reported on the statement of financial position
(a)in the non-current asset section.
(b)at the gross amount less refund liability.
(c)at carrying amount.
(d)only if they are not past due.

Question 60

The account Allowance for Doubtful Accounts is classified as a(n)
(a)liability.
(b)contra account to Bad Debts Expense.
(c)expense.
(d)contra account to Accounts Receivable.

Question 61

The carrying amount of the Accounts Receivable is $19,000 before the write off of a $2,500 account.What is the carrying amount after the write off?
(a)$21,500
(b)$19,000
(c)$16,500
(d)$2,500

Question 62

Under the allowance method for uncollectible accounts, when a year-end adjustment is made for estimated uncollectible accounts,
(a)total assets decrease.
(b)total assets are unchanged.
(c)net income is unchanged.
(d)liabilities decrease.

Question 63

Bad Debts Expense is reported on the statement of income as
(a)part of cost of goods sold.
(b)an ammount equal to the allowance for doubtful accounts and presented on the statement of financial position.
(c)an operating expense.
(d)a non-operating expense.

Question 64

Allowance for Doubtful Accounts on the statement of financial position
(a)is included in current liabilities.
(b)increases the carrying amount of accounts receivable.
(c)appears under the heading "Other Assets."
(d)is deducted from accounts receivable.

Question 65

The normal balance and type of account for the Allowance for Doubtful Accounts is
(a)debit, contra-asset.
(b)credit, asset.
(c)credit, revenue account.
(d)credit, contra-asset.

Question 66

Under the allowance method for uncollectible accounts, when a specific account is written off
(a)total assets are unchanged.
(b)net income is decreased.
(c)total assets decrease.
(d)total assets increase.

Question 67

An aging of a company's accounts receivable indicates that $11,000 is estimated to be uncollectible.If the Allowance for Doubtful Accounts has a $1,600 debit balance, the adjustment to record bad debts for the period will require a
(a)debit to Bad Debts Expense for $12,600.
(b)debit to Bad Debts Expense for $11,000.
(c)debit to Bad Debts Expense for $9,400.
(d)debit to Allowance for Doubtful Accounts for $11,000.

Question 68

Use the following information for questions
Under the aging of a company's accounts receivable, the uncollectible accounts are estimated to be $10,000.The unadjusted balance for the Allowance for Doubtful Accounts is $1,500 credit.
What is the amount of bad debts expense for the year?
(a)$11,500
(b)$10,000
(c)$1,500
(d)$8,500

Question 69

Under the aging of a company's accounts receivable, the uncollectible accounts are estimated to be $26,000.If the unadjusted balance for the Allowance for Doubtful Accounts is $9,000 debit, what is the amount of bad debts expense for the year?
(a)$17,000
(b)$18,000
(c)$26,000
(d)$35,000

Question 70

When an account is written off using the allowance method for uncollectible accounts, accounts receivable
(a)is unchanged and the allowance account increases.
(b)increases and the allowance account increases.
(c)decreases and the allowance account decreases.
(d)decreases and the allowance account increases.

Question 71

The balance in Allowance for Doubtful Accounts would have a debit balance when
(a)the percentage of receivables basis is used.
(b)an uncollectible account is later recovered.
(c)write offs during the year have been less than previous provisions.
(d)write offs during the year have exceeded previous provisions.

Question 72

To record estimated uncollectible accounts using the allowance method, the adjusting entry would be a debit to
(a)Accounts Receivable and a credit to Allowance for Doubtful Accounts.
(b)Bad Debts Expense and a credit to Allowance for Doubtful Accounts.
(c)Allowance for Doubtful Accounts and a credit to Accounts Receivable.
(d)Bad Debts Expense and a credit to Accounts Receivable.

Question 73

Use the following information for questions
Under the aging of a company's accounts receivable, the uncollectible accounts are estimated to be $10,000.The unadjusted balance for the Allowance for Doubtful Accounts is $1,500 credit.
What is the balance in the Allowance for Doubtful Accounts account after adjustment?
(a)$11,500
(b)$10,000
(c)$1,500
(d)$7,000

Question 74

Under the allowance method for uncollectible accounts
(a)the carrying amount of accounts receivable is greater before an account is written off than after it is written off.
(b)Bad Debts Expense is debited when a specific account is written off as uncollectible.
(c)the carrying amount of accounts receivable in the statement of financial position is the same before and after an account is written off.
(d)Allowance for Doubtful Accounts is closed each year to Income Summary.

Question 75

You have just received notice that a customer with an Accounts Receivable balance of $500 has gone bankrupt and will not make any future payments.Assuming you use the allowance method for uncollectible accounts, the entry you make is to
(a)debit Allowance for Doubtful Accounts and credit Bad Debts Expense.
(b)debit Allowance for Doubtful Accounts and credit Accounts Receivable.
(c)debit Bad Debts Expense and credit Allowance for Doubtful Accounts.
(d)debit Bad Debts Expense and credit Accounts Receivable.

Question 76

One might infer from a debit balance in Allowance for Doubtful Accounts that
(a)a posting error has been made.
(b)more accounts have been written off than have been estimated uncollectible.
(c)the percentage of receivables basis is being used.
(d)bad debts expense has been overestimated.

Question 77

If an account is collected after having been previously written off
(a)the allowance account is debited.
(b)only the control account is credited.
(c)both statement of income and statement of financial position accounts are affected.
(d)there is both a debit and a credit to Accounts Receivable.

Question 78

The balance of the Allowance for Doubtful Accounts prior to making the adjusting entry to record Bad Debts Expense
(a)is relevant when using the percentage of receivables basis.
(b)is relevant when debit card sales are made.
(c)is relevant when notes receivable are used.
(d)never shows a debit balance at this stage in the accounting cycle.

Question 79

Under the allowance method for uncollectible accounts, Bad Debts Expense is recorded
(a)in the year after the credit sale is made.
(b)in the same year as the credit sale.
(c)as each credit sale is made.
(d)when an account is written off as uncollectible.

Question 80

When an account is written off using the allowance method for uncollectible accounts, the
(a)carrying amount of total accounts receivable increases.
(b)net accounts receivable decreases.
(c)allowance account increases.
(d)net accounts receivable stay the same.