Accounting I Study Guide Chapter 14

Uncollectible Accounts
Accounts receivable that cannot be collected

Allowance Method
Crediting the estimated value of uncollectible accounts to a contra account

Book Value
The difference between an asset’s account balance and its related contra account balance

Book Value of Accounts Receivable
The difference between the value of Accounts Receivable and its contra account, Allowance for Uncollectible Accounts

Net Realizable Value
The amount of accounts receivable a business expects to collect

Percent of Sales Method
A method used to estimate uncollectible accounts receivable that assumes a percent of credit sales will become uncollectible

Percent of Accounts Receivable Method
A method used to estimate uncollectible accounts receivable that uses an analysis of accounts receivable to estimate the amount that will be uncollectible

Aging of Accounts Receivable
Analyzing accounts receivable according to when they are due

Writing Off an Account
Canceling the balance of a customer account because the customer does not pay

Direct Write-off Method
Recording uncollectible accounts expense only when an amount is actually known to be uncollectible

Promissory Note
A written and signed promise to pay a sun of money at a specific time

Note Payable
A promissory note signed by a business and given to a creditor

Note Receivable
A promissory note that a business accepts from a customer off business

Maker of a Note
The person or business that signs a note, and thus promises to make a payment

Payee
The person or business to whom he amount do a nite is payable

Principal
The original amount of a note, sometimes referred to as the face amount

Interest Rate
The percentage of the principle that is due for the use of funds secured by a note

Maturity Date
The date on which the principal of a note is due to be repaid

Time of a Note
The length of time from the signing date of a note to the maturity date

Maturity Value
The amount that is due in the maturity date of a note

Interest Income
The interest earned on money owned

Dishonored Note
A note that is not paided when due

The expense of an uncollectible account will not be recorded in the accounting period that the account becomes uncollectible.
True

The account, Allowance for Uncollectible Accounts, has a normal credit balance.
True

A business usually knows at the end of a fiscal year which customer accounts will become uncollectible.
False; does not know

The account, Allowance for Uncollectible Accounts, is reported on the income statement.
False; Balance Sheet

The book value of accounts receivable must be reasonable and unbiased estimate of the money the business expects to collect in the future.
True

The percent of sales method of estimating uncollectible accounts expense assumes that a portion of every dollar of sales on account will become uncollectible.
True

The accounting concept, Neutrality, is applied when the process of making accounting estimates is free from bias.
True

The percent of each age group of an accounts receivable aging that is expected to become uncollectible is determined by the Securities and Exchange Commission.
False; business uncollectable method Allowable/Direct

The adjusting entry for uncollectable accounts does not affect the balance of the Accounts Receivable account.
True

A business having a $300.00 credit balance in Allowance for Uncollectible accounts to be $4,000.00 would record a $4,300.00 credit to Allowance for Uncollectible Accounts.
False; $3,700 is subtracted not added

When an account is written off as uncollectible, the business sends the customer a memo.
True

When a customer account is written off under the allowance method, book value of accounts receivable increases.
True

The direct write-off method of accounting for uncollectible accounts does not comply with GAAP.
True

When a previously written-off account is collected, Accounts Receivable is both debited and created for the amount collected.
True

A note provide the business with legal evidence of the debit should it be necessary to go to court to collect.
True

Total assets are reduced when a business accepts a note receivable from a customer needing an extension of time to pay an account receivable.
False; Nothing is increased or decreased a wash occurs

Interest rates are stated as a percentage of the principal.
True

Interest income is classified as an Other Revenue account.
True

The method for calculating interest for the same for notes payable and notes receivable.
True

Interest income should be recorded on a dishonored note receivable.
True

Recorded Adjusting entry for uncollectible accounts expense.
Journal: General
Debit: Uncollectible Accounts Expense
Credit: Allowance for Uncollectible Accounts

Wrote off Sanderson Company’s past-due account as uncollectible.
Journal: General
Debit: Allowance for Uncollectible Accounts
Credit: Accounts Receivable/Sanderson Company

Received cash in full payment of Sanderson Company’s account, previously written off as uncollectible. First Entry
Journal: General
Debit: Accounts Receivable/Sanderson Company
Credit: Allowance for Uncollectible Accounts

Received cash in full payment of Sanderson Company’s account, previously written off as uncollectible. Second Entry.
Journal: Cash Receipts
Debit: Cash
Credit: Accounts Receivable/Sanderson Company

Accepted a note from Sanderson Company for an extension of time on its account.
Journal: General
Debit: Notes Receivable
Credit: Accounts Receivable/Sanderson Company

Collected a note receivable from Sanderson Company.
Journal: Cash Receipts
Debit: Cash
Credit: Notes Receivable/Interest Income

Williams Supply dishonored a notes receivable.
Journal: General
Debit: Accounts Receivable/Williams Supply
Credit: Notes Receivable/Interest Income