Question 1

Use this information to answer the following question. The general ledger account for Accounts Receivable shows a debit balance of $50,000.Allowance for Uncollectible Accounts has a credit balance of $1,000.Net sales for the year were $500,000.In the past,2 percent of sales have proved uncollectible,and an aging of accounts receivable accounts results in an estimate of $17,900 of uncollectible accounts.
Using the accounts receivable aging method,the Allowance for Uncollectible Accounts balance (after adjustment)would be

Accepted Answer

The answer of Use this information to answer the following...

Question 2

Use this information to answer the following question. The general ledger account for Accounts Receivable shows a debit balance of $50,000.Allowance for Uncollectible Accounts has a credit balance of $1,000.Net sales for the year were $465,000.In the past,2 percent of sales have proved uncollectible,and an aging of accounts receivable accounts results in an estimate of $13,500 of uncollectible accounts.
Using the percentage of net sales method,the Allowance for Uncollectible Accounts balance (after adjustment)would be

Accepted Answer

The answer of Use this information to answer the following...

Question 3

The goal of a successful credit policy is to maximize the potential profit on total credit sales while

Accepted Answer

A successful credit policy should aim to maximize the potential profit on total credit sales, but also to limit credit losses to an acceptable level. This means finding a balance between extending credit to customers who will pay while minimizing the risk of defaults and delinquencies. Minimizing the number of credit customers or keeping credit sales low may not necessarily lead to maximum profits. Selling only to customers who will pay is not always feasible or practical, as creditworthiness can change over time.

Question 4

The matching rule relates to credit losses by stating that Uncollectible Accounts Expense should be recorded

Accepted Answer

The matching principle in accounting dictates that expenses should be recorded in the same period as the revenues they help to generate. Therefore, Uncollectible Accounts Expense, which arises from sales on credit, should be recorded in the period of the sale to match the expense with the revenue it helped generate.

Question 5

The matching rule

Accepted Answer

The matching rule requires that expenses be recognized in the same period as the related revenue. Since credit sales generate revenue for the period in which they are made, the bad debt expense must also be recognized in the same period. Since it is impossible to know with certainty which customers will default on their accounts, the allowance method is used to estimate the amount of bad debts that will ultimately be uncollectible. Therefore, the matching rule necessitates the recording of an estimated amount for bad debts.

Question 6

All of the following bank reconciliation items would result in a journal entry on the company's books except

Accepted Answer

Deposits in transit are already recorded in the company's books and do not require a separate journal entry. The other options all involve adjustments that need to be recorded in the company's books.

Question 7

The allowance for uncollectible accounts is necessary because

Accepted Answer

The allowance for uncollectible accounts is necessary because it is not possible to predict specifically which accounts will not be collected when recording uncollectible accounts expense. The allowance is an estimate of the portion of accounts receivable that is expected to be uncollectible, based on past experience and current economic conditions. It is used to reduce the carrying amount of accounts receivable to their estimated net realizable value. The other choices are not the main reason for the allowance for uncollectible accounts.

Question 8

Which of the following methods of recording uncollectible accounts expense would be described best as a balance sheet method?

Accepted Answer

The accounts receivable aging method is a balance sheet method because it estimates the ending balance of the allowance for doubtful accounts on the balance sheet by analyzing the age of the accounts receivable. The other methods listed (percentage of net sales and direct charge-off) are income statement methods because they record uncollectible accounts expense directly on the income statement.

Question 9

Under the allowance method,Uncollectible Accounts Expense is recorded

Accepted Answer

Under the allowance method, Uncollectible Accounts Expense is recorded for an estimated amount based on the company's past experience and current economic conditions. This is done to anticipate and account for future losses from customers who are unlikely to pay their debts.

Question 10

Use this information to answer the following question. The general ledger account for Accounts Receivable shows a debit balance of $50,000.Allowance for Uncollectible Accounts has a credit balance of $1,000.Net sales for the year were $500,000.In the past,2 percent of sales have proved uncollectible,and an aging of accounts receivable accounts results in an estimate of $13,500 of uncollectible accounts.
Using the accounts receivable aging method,the Allowance for Uncollectible Accounts balance (after adjustment)would be

Accepted Answer

Using the accounts receivable aging method, the estimated uncollectible accounts are $13,500. This amount should be added to the current balance of Allowance for Uncollectible Accounts, which is $1,000. Therefore, the new balance after adjustment would be $14,500 (Option A).

Question 11

The balance in Allowance for Uncollectible Accounts must be considered prior to end-of-period adjustment when using which of the following methods?

Accepted Answer

The answer of The balance in Allowance for Uncollectible Accounts...

Question 12

Which of the following bank reconciliation items would result in a journal entry on the company's books?

Accepted Answer

The answer of Which of the following bank reconciliation items...

Question 13

Which of the following account names should not be used in modern practice?

Accepted Answer

In modern practice, the term "reserve" is typically not used in accounting. Instead, the term "allowance" is used to refer to funds set aside for a specific purpose, such as bad debts. Therefore, choice A, "Reserve for Bad Debts," is the account name that should not be used in modern practice. B, C, and D are all acceptable account names for the allowance set aside for bad debts.

Question 14

Which of the following methods of recording uncollectible accounts expense would be described best as an income statement method?

Accepted Answer

The percentage of net sales method is an income statement method because it estimates the amount of uncollectible accounts as a percentage of net credit sales for the period, resulting in a direct charge to the income statement in the period the sales were made. The direct charge-off method and the accounts receivable aging method are balance sheet methods because they focus on estimating the ending balance of the allowance for doubtful accounts, which is a contra asset account on the balance sheet.

Question 15

For which of the following errors should the appropriate amount be added to the balance per bank on a bank reconciliation?

Accepted Answer

The answer of For which of the following errors should...

Question 16

The account Allowance for Uncollectible Accounts is classified as a(n)

Accepted Answer

The Allowance for Uncollectible Accounts is a contra account to Accounts Receivable. It is used to record and estimate the amount of accounts receivable that are not expected to be collected. This contra account reduces the overall balance of Accounts Receivable, and is reported on the balance sheet as a deduction from the total amount of Accounts Receivable.

Question 17

Using the accounts receivable aging method,estimated uncollectible accounts are $50,000.If the balance of the Allowance for Uncollectible Accounts is an $18,000 debit before adjustment,what is the balance after adjustment?

Accepted Answer

The answer of Using the accounts receivable aging method,estimated uncollectible...

Question 18

Using the percentage of net sales method,uncollectible accounts expense for the year is estimated to be $54,000.If the balance of the Allowance for Uncollectible Accounts is an $18,000 credit before adjustment,what is the balance after adjustment?

Accepted Answer

The answer of Using the percentage of net sales method,uncollectible...

Question 19

If the amount of uncollectible accounts expense is overstated at year end,

Accepted Answer

The uncollectible accounts expense is deducted from the gross accounts receivable to arrive at the net accounts receivable. If the expense is overstated, the deduction will be too high, resulting in an understatement of the net accounts receivable.

Question 20

Use this information to answer the following question. The general ledger account for Accounts Receivable shows a debit balance of $50,000.Allowance for Uncollectible Accounts has a credit balance of $1,000.Net sales for the year were $522,000.In the past,2 percent of sales have proved uncollectible,and an aging of accounts receivable accounts results in an estimate of $13,500 of uncollectible accounts.
Using the percentage of net sales method,Uncollectible Accounts Expense would be debited for

Accepted Answer

Using the percentage of net sales method:
0.02 x $522,000 = $10,440
So, Uncollectible Accounts Expense would need to be debited for $10,440.

Quiz 7: Cash and Receivables