Advanced Accounting Ch. 6 Review

Regardless of whether a business uses the direct write-off or allowance method, accounts receivable should be reported on the balance sheet at net realizable value.

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Recording uncollectible accounts expense at the time the amount is actually known to be uncollectible is called the allowance method of recording losses from uncollectible accounts.

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Analyzing accounts receivable according to when they are due is known as aging net sales.

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• False

Canceling the balance of a customer account because the customer is not expected to pay is known as writing off an account.

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The accounts receivable turnover ratio is a measure of collection efficiency.

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The larger the accounts receivable turnover ratio, the fewer the average number of days for payment.

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Using the direct write-off method, no attempt is made to collect accounts that have been written off because the account no longer appears in the accounting records of the business.

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Two methods used to estimate uncollectible accounts expense are the percentage of sales method and the percentage of uncollectible accounts receivable method.

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Greenbriar, Inc. estimates that 1% of its net sales will become uncollectible. The adjustment is made by debiting Uncollectible Accounts Expense and crediting Accounts Receivable.

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The difference between the balance of Accounts Receivable and its contra account, Allowance for Uncollectible Accounts, is the book value of accounts receivable.

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