Deck 14: Bad Debts

Question 1

Allowance for Doubtful Accounts is used under the direct write-off method of accounting for bad debts expense.​

Answer 1

False

Question 2

EasyLearn Inc., a book publishing company, uses the allowance method of accounting for bad debts expense. During the year, an amount of $2,000 was determined to be uncollectible from a customer; the credit balance in the Allowance for Doubtful Accounts is $3,000. Which of the following journal entries records the write off of the uncollectible customer account?

A) Debit Bad Debts Expense by $2,000, and credit Accounts Receivable by $2,000.
B) Debit Bad Debts Expense by $2,000, and credit Allowance for Doubtful Accounts by $2,000.
C) Debit Allowance for Doubtful Accounts by $2,000, and credit Accounts Receivable by $2,000.
D) Debit Accounts Receivable by $2,000, and credit Allowance for Doubtful Accounts by $2,000.

Answer 2

C

Question 3

Markley Company's total sales on account for the year amounted to $360,000 including cash sales of $60,000. The company estimates that 2% of its total credit sales will be uncollectible. If Markley uses the allowance method of accounting for bad debts expense, the bad debts provided for is equal to:

A) $6,000.
B) $7,200.
C) $1,200.
D) $1,800.

Answer 3

A

Question 4

The direct write-off method of accounting for bad debts expense is not allowed under GAAP (generally accepted accounting principles).

Question 5

Which of the following accounting equations is used to compute assets?

A) Assets = Liabilities - Capital + Drawing - Revenue + Expenses
B) Assets = Liabilities + Capital - Drawing - Revenue + Expenses
C) Assets = Liabilities + Capital - Drawing + Revenue - Expenses
D) Assets = Liabilities - Capital + Drawing + Revenue - Expenses

Question 6

Glowra Company uses the allowance method of accounting for debt debts expense. At the beginning of the current year, the Allowance for Doubtful Accounts had a credit balance of $5,000 and the Accounts Receivable had a debit balance of $20,000. In the current year, an amount of $200 is determined to be uncollectible, and is recorded in the books correctly. Which of the following statements is true of the accounting treatment of the bad debts expense? ​

A) The balances of Accounts Receivable and Allowance for Doubtful Accounts increase by $200.
B) Adjusting entries for accounting the bad debts expense are made directly into the Bad Debts Expense account.
C) The balances of Accounts Receivable and Allowance for Doubtful Accounts decrease by $200.
D) No adjusting entries are made, and the bad debts expense is charged directly to the net profit account.

Question 7

Which of the following is a disadvantage of the direct write-off method of accounting for bad debts expense?

A) The direct write-off method requires complex computation for the estimation of bad debts expense.
B) The direct write-off method requires extra adjusting entries to write off bad debts.
C) The direct write-off method is not consistent with the accrual basis of accounting.
D) The direct write-off method requires additional journal entries to be passed through Allowance for Doubtful Accounts.

Question 8

Which of the following is a similarity between the allowance method and the direct write-off method of accounting for bad debts?

A) Both the methods require an estimate of bad debt expense.
B) Both the methods provide for writing or charging off of uncollectible customers' accounts.
C) Both the methods are consistent with the accrual basis of accounting.
D) Both the methods are allowed under GAAP (generally accepted accounting principles).
​

Question 9

Which of the following results from recording bad debts expense under the allowance method?

A) A decrease in Bad Debts Expense
B) An increase in Allowance for Doubtful Accounts
C) An increase in Revenue
D) A decrease in Uncollectible Accounts

Question 10

The allowance method of accounting for bad debts expense is consistent with the accrual basis of accounting as it matches revenues of one year with expenses of the same year.

Question 11

Kiara Inc. follows the direct write-off method of accounting for bad debts expense. The total revenue for the year is $600,000, but the company could collect only $580,000; the rest were uncollectible. What is the journal entry to record the accounting treatment of the bad debt expense by Kiara Inc.?

Question 12

Which of the following is true of the treatment of bad debts expense in the allowance method of accounting for bad debts?

A) Bad debts expense is provided in advance by estimating the expenses.
B) Bad debts expense is credited in the adjusting entry to create provision for bad debts.
C) Bad debts expense is recorded as the difference between the estimated and actual uncollectible accounts.
D) Bad debts expense is treated as a deduction from Accounts Receivable.

Question 13

Which of the following is true about a credit balance in Allowance for Doubtful Accounts at the end of a year?

A) More accounts receivable were actually written off as uncollectible during the year than estimated previously.
B) Bad debts expense in the period was overstated and net income was understated.
C) Bad debts expense in the period was understated and net income was overstated.
D) Accounts receivable estimated as uncollectible is equal to the bad debts expense written off during the year.

Question 14

Upstart Enterprise's total revenue for last year is $300,000, and it estimates 2% of revenue as bad debts. Which of the following journal entries records the bad debts expense under the allowance method?

A) Debit Allowance for Doubtful Accounts by $6,000, and credit Bad Debts Expense by $6,000.
B) Debit Accounts Receivable by $6,000, and credit Bad Debts Expense by $6,000.
C) Debit Bad Debts Expense by $6,000, and credit Accounts Receivable by $6,000.
D) Debit Bad Debts Expense by $6,000, and credit Allowance for Doubtful Accounts by $6,000.

Question 15

In the allowance method of accounting for bad debts expense, Bad Debts Expense account is debited, and Accounts Receivable is credited when an uncollectible account is written off.