TOPIC 7 ACCOUNTING FOR RECEIVABLES

When the allowance method is used to account for uncollectible accounts, Bad Debt Expense is debited when

• a sale is made.

• an account becomes bad and is written off.

• management estimates the amount of uncollectibles.

• a customer's account becomes past-due.

When an account becomes uncollectible and must be written off,

• Bad Debt Expense should be credited.

• Allowance for Doubtful Accounts should be credited.

• Sales Revenue should be debited.

• Accounts Receivable should be credited.

Under the direct write-off method of accounting for uncollectible accounts, Bad Debt Expense is debited

• when a credit sale is past due.

• when an account is determined to be uncollectible.

• at the end of each accounting period.

• whenever a pre-determined amount of credit sales have been made.

Two methods of accounting for uncollectible accounts are the

• allowance method and the accrual method.

• direct write-off method and the accrual method.

• direct write-off method and the allowance method.

• allowance method and the net realizable method.

To record estimated uncollectible accounts using the allowance method, the adjusting entry would be a

• debit to Accounts Receivable and a credit to Allowance for Doubtful Accounts.

• debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts.

• debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable.

• debit to Loss on Credit Sales Revenue and a credit to Accounts Receivable.

Two bases for estimating uncollectible accounts are:

• percentage of current assets and percentage of sales.

• percentage of assets and percentage of sales.

• percentage of receivables and percentage of sales.

• percentage of receivables and percentage of total revenue.

Valli Company uses the percentage of sales method for recording bad debts expense. For the year, cash sales are $700,000 and credit sales are $2,500,000. Management estimates that 1% is the sales percentage to use. What adjusting entry will Valli Company make to record the bad debts expense?

• Bad Debt Expense 32,000

  Allowance for Doubtful Accounts 32,000

• Bad Debt Expense 25,000

  Accounts Receivable 25,000

• Bad Debt Expense 25,000

  Allowance for Doubtful Accounts 25,000

• Bad Debt Expense 32,000

  Accounts Receivable 32,000

Using the percentage-of-receivables method for recording bad debt expense, estimated uncollectible accounts are $12,000. If the balance of the Allowance for Doubtful Accounts is $2,500 credit before adjustment, what is the amount of bad debt expense for that period?

• $2,500

• $9,500

• $12,000

• $14,500

Using the percentage-of-receivables basis, the uncollectible accounts is estimated to be $33,000. If the balance for the Allowance for Doubtful Accounts is a $5,000 debit before adjustment, what is the amount of bad debt expense for the period?

• $5,000

• $28,000

• $33,000

• $38,000

The direct write-off method of accounting for bad debts

• uses an allowance account.

• uses a contra-asset account.

• does not require estimates of bad debt losses.

• is the preferred method under generally accepted accounting principles.