Acc 120 Chapter 9

Front 1

A note receivable due in 18 months is listed on the balance sheet under the caption

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investments

Front 2

The receivable that is usually evidenced by a formal instrument of credit is a(n)

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note receivable

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Notes or accounts receivables that result from sales transactions are often called

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trade receivables

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Two methods of accounting for uncollectible accounts are the

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direct write-off method and the allowance method.

Front 5

One of the weaknesses of the direct write-off method is that it

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violates the matching principle

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If the allowance method of accounting for uncollectible receivables is used, what general ledger account is debited to write off a customer's account as uncollectible?

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Allowance for Doubtful Accounts

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On the balance sheet, the amount shown for the Allowance for Doubtful Accounts is equal to the

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total estimated uncollectible accounts as of the end of the year

Front 8

What is the type of account and normal balance of Allowance for Doubtful Accounts?

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Contra asset, credit

Front 9

A debit balance in the Allowance for Doubtful Accounts

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indicates that actual bad debt write-offs have exceeded previous provisions for bad debts.

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The collection of an account that had been previously written off under the allowance method of accounting for uncollectibles

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does not affect net income in the period it is collected.

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To record estimated uncollectible receivables using the allowance method, the adjusting entry would be a

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debit to Bad Debs Expense and a credit to Allowance for Doubtful Accounts.

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Using the allowance method of accounting for uncollectible receivables, the entry to reinstate a specific receivable previously written off would include a

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debit to Accounts Receivable

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The amount of a promissory note is called the

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face value

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The amount of the promissory note plus the interest earned on the due date is called the

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maturity value

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If the maker of a promissory note fails to pay the note on the due date, the note is said to be

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dishonored

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The journal entry to record a note received from a customer to apply on account is

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debit Notes Receivable; credit Accounts Receivable

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When referring to a note receivable or promissory note

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the note may be used to settle an accounts receivable.

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Accounts Receivable Turnover measures

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how frequently during the year the accounts receivable are converted to cash

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The number of days' sales in receivables

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is an estimate of the length of time the receivables have been outstanding

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Receivables are usually listed in order

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of liquidity

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Accounts receivable turnover

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The relationship between the sales and accounts receivable, computed by dividing the net sales by the average net accounts receivable; measures how frequently during the year the accounts receivable are being converted into cash

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Aging the receivables

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The process of analyzing the accounts receivable and classifying them according to various age groupings, with the due date being the base point for determining age

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Allowance for doubtful accounts

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The contra asset account for accounts receivable

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Allowance method

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The method of accounting for noncollectable accounts that provides an expense for noncollectable receivables in advance of their write-off

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Bad debt expense

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The operating expense incurred because of the failure to collect receivables

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Dishonored note receivable

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A note that the maker fails to pay on the due date

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Maturity Value

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The amount that us due at the due date of a note

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Net realizable value

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The value of the receivable expected to be collected or realized

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Number of days' sales in receivables

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The relationship between the sales and accounts receivable computed by dividing the net accounts receivable at the end of the year by the average daily sales

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receivables

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All money claims against other entities, including people, business firms, and other organiziations