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10 Cards in this Set

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Name & describe the 3 entries for bad debt allowance?
Allowance (for doubtful accounts) Entry -- used at the end of the acctng period to estimate the bad debt expense; driven by the matching principle. We know who isn't going to pay at this point.
Write Off Entry -- Used when we know which customers are not going to pay. We need to zero out sub-ledger and credit A/R as we are selling the acct.
Recovery Entry -- Someone comes back to pay after being written off. Re-create the sub-ledger (Allow for D/A) and debit A/R. Then do normal cash entry.
What is the entry to record an account that is no longer collectible?
DR Allow for D/A (+xA)
CR A/R (-A)

Need to take out of A/R as we are factoring the account (getting rid of it). We know by now who is not going to pay.
What is the entry to record an account that someone has come back to pay after being written off?
DR A/R
CR Allow for D/A
DR Cash
CR A/R
What is the entry if we are unsure if the account will be paid or not, but we need to account for it according to the allowance method?
DR Bad Debt Expense
CR Allow for D/A
What effect does the following entry have on net A/R, net sales & net income?

DR Allow for D/A
CR A/R
1) No effect because they cancel each other out
2) No effect because they are both B/S accts & sales show up on I/S.
3) Same as #2
What effect does the following entry have on net A/R, net sales & net income?

DR A/R
CR Service Revenue
1) A/R goes up since we are debiting A/R and debit is it's normal balance.
2) Net Sales go up since we crediting rev and credit is it's normal balance.
3) Net Income would go up since it is a result of rev - exp and our rev went up.
What effect does the following entry have on net A/R, net sales & net income?

DR A/R
CR Allow for D/A
DR Cash
CR A/R
1) A negative impact because we start with a positive, and then deduct twice.
2) No effect since we only touched asset accounts and net sales are recorded on the I/S, not the B/S.
3) No effect since we only touched asset accounts and net sales are recorded on the I/S, not the B/S.
What effect does the following entry have on net A/R, net sales & net income?

DR Bad Debt Expense
CR Allow for D/A
1) A negative impact since allow for D/A accts are part of net A/R.
2) No effect, we are not touching revenue at all.
3) A negative impact since NI is a results of rev - exp.
Name, describe & give calculation for the 2 methods for calculating bad debt amounts.
1) Aging of A/R method (B/S) -- takes >30, 30-60, 60-90 and 90+ totals to determine ending allow for D/A, then calculate bad debt exp (beg bal, deduct w/o's, add recoveries, deduct total from ending allow for D/A total).
2) % of credit sales method (I/S) -- take credit sales & previous years uncollected sales into acct. Take sales on acct x historic or industry % to calculate bad debt expense.
What is the ratio for calculating the turnover of receivables?
Net Sales/Average Receivables (beg rec + end rec/2)