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