Question 1

Moonlight,Inc.wrote off the account of one of its customers,X,in 2018 for $500.On January 21,2019,X unexpectedly repaid his account in full.The company uses the direct write-off method to account for uncollectible receivables.Journalize the entries required for Moonlight,Inc.on January 21,2019.Omit explanations.

Accepted Answer

The answer of Moonlight,Inc.wrote off the account of one of...

Question 2

Prepare the journal entry to record an uncollectible accounts receivable of $10,000,using the direct write-off method.Omit explanation.

Accepted Answer

The answer of Prepare the journal entry to record an...

Question 3

For a company with significant uncollectible receivables,the direct write-off method is unsuitable because ________.

Accepted Answer

The direct write-off method violates the matching principle because it waits until a debt becomes uncollectible before recognizing it as an expense, regardless of when the sale was made. This can distort the company's financial statements and make it difficult to track the true profitability of the business. Therefore, a more appropriate method for a company with significant uncollectible receivables would be the allowance method which uses estimates to determine the bad debt expense and matches it with the related revenue in the same accounting period.

Question 4

In order to keep accurate records about the collection of cash for a previously written off account,a business should re-establish the Accounts Receivable by debiting the receivable account.

Accepted Answer

By debiting the receivable account, the business is essentially re-establishing the account and reflecting the collection of cash. This allows for accurate record-keeping and accounting for the previously written off account.

Question 5

Companies that follow GAAP are required to use the direct write-off method for uncollectible accounts receivable.

Accepted Answer

The allowance method is required by GAAP.

Question 6

The Allowance for Bad Debts is a contra account to Accounts Receivable.

Accepted Answer

The Allowance for Bad Debts is a contra account because it is used to reduce the balance of the Accounts Receivable account to reflect the estimated amount of uncollectible accounts.

Question 7

On January 1,All City Services has the following balances:
Accounts Receivable $25,000
Bad Debts Expense $0
All City has the following transactions during January: Credit sales of $120,000,collections of credit sales of $81,000,and write-offs of $18,000.All City uses the direct write-off method.The amount of Bad Debts Expense for January is ________.

Accepted Answer

Under the direct write-off method, Bad Debts Expense is recognized when debts are deemed uncollectible and written off. In January, All City wrote off $18,000, directly impacting Bad Debts Expense by the same amount.

Question 8

Once an accounts receivable is written off ________.

Accepted Answer

Writing off an accounts receivable means removing it from the books as a bad debt expense, which indicates the company has given up on collecting the payment from the customer. The account does not need to be turned over to a collection agency or pursued further. The company does not expect to be paid after writing off the account.

Question 9

Under both the allowance method and the direct-write off method of accounting for uncollectible accounts,the amount of bad debts expense is estimated at the end of each accounting period.

Accepted Answer

Under the allowance method, the amount of bad debts expense is estimated at the end of each accounting period. However, under the direct write-off method, bad debts expense is not estimated but rather recognized when an account is deemed uncollectible and is directly written off at that time.

Question 10

Which of the following statements regarding the allowance method of accounting for uncollectible receivables is incorrect?

Accepted Answer

Bad debt expense is estimated under the allowance method of accounting for uncollectible receivables.

Question 11

A method of accounting for uncollectible receivables in which the company estimates bad debts expense instead of waiting to see from which customers the company will not be able to collect is known as the allowance method.

Accepted Answer

The statement accurately describes the allowance method of accounting for uncollectible receivables.

Question 12

The direct write-off method is only acceptable for companies that have very few uncollectible receivables.

Accepted Answer

The direct write-off method is generally considered acceptable for companies with very few uncollectible accounts because it has minimal impact on the financial statements, and such companies do not need to comply with the matching principle as strictly as larger companies with more significant amounts of receivables.

Question 13

The allowance method of accounting for uncollectible receivables ________.

Accepted Answer

The allowance method is used to estimate and measure bad debts expense by predicting which accounts receivable will be uncollectible, aligning with the matching principle by recording expenses in the same period as the revenues they helped generate. It does not violate the matching principle, it records bad debt expense based on estimation rather than at the specific time of write-off, and it uses a contra asset account (Allowance for Doubtful Accounts), not a contra liability account.

Question 14

The use of the allowance method to record bad debts expense violates the matching principle.

Accepted Answer

The use of the allowance method to record bad debts expense is based on the matching principle.

Question 15

Customer G.Smith owed Stonehollow Electronics $425.On April 27,2018,Stonehollow determined this account receivable to be uncollectible and wrote off the account.The company uses the direct write-off method.On July 15,2018,Stonehollow received a check for $425 from the customer.How should the July 15,2018 transaction be recorded?

Accepted Answer

The answer of Customer G.Smith owed Stonehollow Electronics $425.On April...

Question 16

In order to keep accurate records about the collection of cash for a previously written off account,a business should re-establish the Accounts Receivable by crediting the receivable account.

Accepted Answer

The receivable account is debited.

Question 17

A company with significant amounts of accounts receivable experiences uncollectible accounts from time to time.If the company uses the direct write-off method,the effect of writing off an uncollectible receivable will be ________.

Accepted Answer

According to the direct write-off method, a company writes off uncollectible receivables as soon as it determines them to be uncollectible. This means that the company will record a loss for the uncollectible amount, which will reduce the company's net income. Therefore, the effect of writing off an uncollectible receivable will be a reduction in net income.

Question 18

On January 1,Five Star Services has the following balances:
Accounts Receivable $24,000 (debit)
Bad Debts Expense $0
Five Star Services has the following transactions during January: Credit sales of $120,000,collections of credit sales of $86,000,and write-offs of $20,000.Five Star Services uses the direct write-off method.At the end of January,the balance of Accounts Receivable is ________.

Accepted Answer

B)Beginning balance $24,000 + Credit Sales $120,000 - Collections $86,000 - Write-offs $20,000 = $38,000

Question 19

The direct write-off method for uncollectible accounts violates the matching principle.

Accepted Answer

The direct write-off method only recognizes bad debt expense in the period when the account is actually deemed uncollectible, which may not match the period in which the revenue was earned. This violates the matching principle, which requires expenses to be recognized in the period when the related revenue is earned.

Question 20

Which of the following statements is true of the direct write-off method?

Accepted Answer

The direct write-off method is only suitable for small companies that have very few uncollectible receivables. This is because it does not provide an accurate matching of revenues with expenses and it does not result in more accurate net income than any other method. GAAP does not require public companies to follow the direct write-off method.

Quiz 8: Receivables