Chapter 5 Flashcards by Kristen Graves

What is the transfer of products and services to a customer today and expecting to collect cash in the future?

Credit Sales

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What is credit sales also known as?

Sales on Account

2. Services on Account

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What is common for many business practices?

Credit sales

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What is cash owed to the company by its customers for sales or services on account?

Accounts Receivable

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What is accounts receivable also known as?

Trade Receivables

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Make journal entry:

Link’s Dental charges $500 for teeth whitening. Dee Kay decides to have her teeth whitened on March 1 but doesn’t pay cash at the time of service. She promises to pay the $500 whitening fee to Link by March 31.

3/1 Accounts Receivable $500

Service Revenue $500

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What are receivables that originate from sources other than customers?

Nontrade Receivables

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What are formal credit arrangements evidenced by written debt instruments?

Notes Receivable

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Which of the following are sometimes called trade receivables?

a. Accounts receivable
b. Interest receivable
c. Notes receivable
d. Tax refund claims

a. Accounts receivable

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What are used to provide incentives to larger customers or certain consumer groups?

Trade discounts

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What are reductions in list price of a product or service?

Trade discounts

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Make journal entry:

Link’s Dental typically charges $500 for teeth whitening. Dr. Link offers a 20% discount on teeth whitening

500 x .2 = 100 ; 500 - 100 = 400

Accounts Receivable $400
Service Revenue $400

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If a customer returns a product what do you debit and credit?

You debit sales return and credit accounts receivable

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If a customer does not return a product and the price is still discounted what do you debit and credit?

You debit sales allowance and credit accounts receivable

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Which financial statement is sales return recorded on?

The income statement

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Is sales return recorded as a positive or a negative on the income statement?

A negative

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Is sales allowance recorded as a positive or a negative on the income statement?

A negative

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Fill in the Blank:

Sales return and sales allowance are ___________ accounts

Contra revenue

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What are accounts that reduce from the gross revenue?

Contra revenue accounts

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Are sale returns revenues or expenses?

They are revenues

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Are sale allowances revenues or expenses?

They are revenues

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Fill in the Blank:

___________ represent reductions of revenues, whereas ________ represent the separate costs of generating revenues.

Contra revenues

2. Expenses

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If a customer receives a reduction for paying within a specified period of time what do you debit and credit?

You debit cash and sales discount and credit accounts receivable

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What does the term 2/10 represent?

The discount that you can get if you pay within a certain amount of days

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What does the term n/30 represent?

The total number of days that you have to pay the payment

Make a journal entry: Link’s Dental offers Dee terms of 2/10, n/30 on $350 owed; Dee pays on March 10 (Original on account day was March 1)

(D) Cash 343 (D) Sales Discount 7 (C) Accounts Receivable 350

Which financial statement is sales allowance recorded on?

The income statement

Which financial statement is sales discount recorded on?

The income statement

Is sales discount recorded as a positive or a negative on the income statement?

A negative

The effect of a sales allowance will result in which of the following: a. An increase to net income b. A decrease to net income c. An increase to accounts receivable d. An increase to sales revenue

b. A decrease to net income

What is the formula to find Net Revenue?

Total Revenue – Sales Discounts – Sales Allowances

What is the amount of cash we expect to collect?

The Net Realizable Value

# Fill in the Black: Increase/Reduce Estimated uncollectible accounts ______ assets and ______ expenses

1. Reduce | 2. Increase

What bases the estimate of bad debts on a balance sheet amount?

The percentage-of-receivables method

What is the percentage-of-receivables method also known as?

The balance sheet method

Which financial statement is bad debt expense reported on?

The income statement

Which financial statement is contra assets reported on?

The balance sheet

What reduces the balance for total assets?

Allowance for Uncollectible Accounts

Make a journal entry At the end of 2018, Kimzey is owed $20 million from customers and estimates that 30% will not be collected.

20 million x .3 = 6 million Bad Debt Expense 6 Allowance for Uncollectible Accounts 6

Is allowance for uncollectible accounts recorded as a positive or a negative on the balance sheet?

A negative

Is allowance for uncollectible accounts an asset, liability, or stockholders' equity?

It's a asset

Which of the following is true regarding Allowance for Uncollectible Accounts? a. It is a liability account. b. It is added to the total of Sales Discounts, Sales Returns, and Sales Allowances. c. It is subtracted from the balance of Accounts Receivable in the balance sheet. d. It appears in the income statement as an expense.

c. It is subtracted from the balance of Accounts Receivable in the balance sheet.

How do you find Accounts Receivable’s net realizable value?

Accounts Receivable - Allowance for Uncollectible Accounts

What is considered the age of receivables?

The aging method

# Fill in the Blank: Older or Younger In the aging method _____ accounts are more likely uncollectible

Older accounts

When you have an estimate that won't be collected at the end of the year what do you debit and credit?

You debit bad debt expense and credit allowance for uncollectible accounts

Which of the following is true about the aging method? a. No estimate for uncollectible accounts is made. b. Older accounts are more likely to be collected. c. It is not acceptable for GAAP. d. Older accounts are less likely to be collected.

d. Older accounts are less likely to be collected.

What does a write off reduce the balances of?

Accounts receivable and allowance for uncollectable accounts

Does a write off affect total assets?

Does a write off affect total expenses?

Why doesn't a write off affect total assets?

The negative effects of bad debts are already recorded

When you make a write off what do you debit and credit?

In your first entry you debit accounts receivable and credit allowance for uncollectible accounts In your second entry you debit cash and credit accounts receivable

Make a journal entry: Kimzey receives notice that Bruce Easley has filed for bankruptcy and will not pay $4,000 Kimzey writes off Bruce’s account receivable

Accounts receivable 4,000 Allowance for uncollectible accounts 4,000 Cash 4,000 Accounts receivable 4,000

Does the collection of accounts previously written off have any affect on total assets?

Does the collection of accounts previously written off have any affect on net income?

If you collect a payment previously written of what do you debit and credit?

You debit cash and credit allowance for uncollectible accounts

When writing off an uncollectible account: a. Bad debt expense is debited. b. Net income is decreased. c. Total assets are unchanged. d. The allowance account is credited.

c. Total assets are unchanged.

When you have a year end adjustment what do you debit and credit?

You debit bad debt expense and credit allowance for uncollectable accounts

Is bad debt expense a positive or negative on the income statement?

A positive

What is the difference between the allowance method and the write-off method?

Timing

On December 31 before adjusting entries, a company reports the following balances: Accounts Receivable - 100,000 Allowance for U.A - 2,000 (Credit) The company estimates bad debts to be 20% of accounts receivable. The adjusting entry would include: a. A debit to Bad Debt Expense = $18,000 b. A credit to Allowance for Uncoll. Accts. = $24,000 c. A credit to Allowance for Uncoll. Accts. = $22,000 d. A debit to Bad Debt Expense = $20,000

a. A debit to Bad Debt Expense = $18,000 | 100,000 x 20% = 20,000 20,000 - 2,000 = 18,000 - 2,000 b/c it's credit

What is similar to accounts receivable but include a written debt agreement, or note?

Note Receivable

If you have a notes receivable without interest what do you debit and credit?

You debit notes receivable and credit service revenue

Make a journal entry for initial note: Kimzey provided $10,000 of services to Justin Payne, who is not able to pay immediately Justin Payne signs a promissory note, offering to pay $10,000 plus 12% interest in six months (August 1).

Notes Receivable 10,000 | Service Revenue 10,000

If you are collecting a notes receivable with interest what do you debit and credit?

You debit cash and credit notes receivable and interest revenue

What is the formula to find interest?

Interest = Money x percentage x the # of months

Kimzey provided $10,000 of services to Justin Payne, who is not able to pay immediately Justin Payne signs a promissory note, offering to pay $10,000 plus 12% interest in six months (August 1). After six months, Kimzey collects the full amount owed by Justin, including interest Make a journal entry for the collection of notes receivable and interest

Interest = 10,000 x .12 x (6/12) = 600 (D) Cash 10,600 (C) Notes Receivable 10,000 (C) Interest Revenue 600

Make a journal entry: On December 31, 2018, Kimzey accrues interest for note receivable accepted on November 1, 2018. Amount = 10,000 Percentage = 12%

Accrual Interest = 10,000 x .12 x (2/12) = 200 Interest Received 200 Interest Revenue 200

Make a journal entry: On May 1, 2019, the maturity date, Kimzey collects the note of $10,000 and the interest of $600. Percentage = 12%

2019 Interest = 10,000 x .12 x (4/12) = 400 (D) Cash 10,600 (C) Notes Receivable 10,000 (C) Interest Receivable (2018) 200 (C) Interest Revenue (2019) 400

A company accepts a note receivable of $5,000 on September 1, 2018, that matures in 10 months and has stated interest of 6%. What amount of interest revenue will the company record in 2018 and 2019? a. 2018 = $100; 2019 = $150 b. 2018 = $125; 2019 = $125 c. 2018 = $150; 2019 = $100 d. 2018 = $0; 2019 = $250

a. 2018 = $100; 2019 = $150

What is the number of times during a year the average accounts receivable balance is collected?

The Receivable Turnover Ratio

What is the formula to find the receivable turnover ratio?

Net Sales/ Average Accounts Receivable

What is the formula to find average accounts receivable?

(Beg A/R + End A/R) / 2

What is the number of days the average accounts receivable balance is outstanding?

The Average Collection Period

What is the formula to find the average collection period?

365/receivable turnover ratio

Is it better to have a higher or lower receivable turnover ratio?

It's better to have a higher turnover

Is it better to have a higher or lower average collection period?

It's better to have a lower collection period

Which of the following would be true for a company that has an accounts receivable turnover of 10? a. The company turns over their accounts receivable more than once a month. b. The company would have an average collection period of 36.5 days. c. The company would be considered as doing an efficient job of collecting receivables if the terms were net 30. d. The company would have an average collection period of 20 days.

b. The company would have an average collection period of 36.5 days.

What estimates uncollectible accounts based on the percentage of credit sales?

The Percentage-of-Credit-Sales Method

What is the Percentage-of-Credit-Sales Method also known as?

The income statement method

What adjusts the allowance for uncollectible accounts for the current year’s credit sales that we don’t expect to collect ?

The Percentage-of-Credit-Sales Method

On December 31 before adjusting entries, a company reports the following balances: A/R - 100,000 Allowance for U.A - 2,000 (credit) Credit Sales - 500,000 The company estimates bad debts to be 4% of credit sales. The adjust entry would include: a. A debit to Bad Debt Expense = $18,000 b. A credit to Allowance for Uncoll. Accts. = $24,000 c. A credit to Allowance for Uncoll. Accts. = $22,000 d. A debit to Bad Debt Expense = $20,000

c. A credit to Allowance for Uncoll. Accts. = $22,000 $500,000 × 4% = $20,000 20,000 + 2,000 (C) = 22,000

What do you debit and credit when you accrual interest?

You debit interest received and credit interest revenue

Chapter 5 Flashcards

(83 cards)