ACCOUNTING FOR RECEIVABLES

Claims for which formal instruments of credit are issued as proof of the debt are

• accounts receivable.

• interest receivable.

• notes receivable.

• other receivables.

Trade accounts receivable are valued and reported on the balance sheet

• in the investment section.

• at gross amounts less sales returns and allowances.

• at net realizable value.

• only if they are not past due.

Three accounting issues associated with accounts receivable are

• depreciating, returns, and valuing.

• depreciating, valuing, and collecting.

• recognizing, valuing, and disposing.

• accrual, bad debts, and disposing.

Under the allowance method, writing off an uncollectible account

• affects only balance sheet accounts.

• affects both balance sheet and income statement accounts.

• affects only income statement accounts.

• is not acceptable practice.

The collection of an account that had been previously written off under the allowance method of accounting for uncollectibles

• will increase income in the period it is collected.

• will decrease income in the period it is collected.

• requires a correcting entry for the period in which the account was written off.

• does not affect income in the period it is collected.

An aging of a company's accounts receivable indicates that $8,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,100 credit balance, the

adjustment to record bad debts for the period will require a

• debit to Bad Debts Expense for $8,000.

• debit to Allowance for Doubtful Accounts for $6,900.

• debit to Bad Debts Expense for $6,900.

• credit to Allowance for Doubtful Accounts for $8,000.

A reasonable amount of uncollectible accounts is evidence

• that the credit policy is too strict

• that the credit policy is too lenient.

• of a sound credit policy.

• of poor judgments on the part of the credit manager.

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 Debts 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 and a credit to Accounts Receivable.

King Company uses the percentage of sales method for recording bad debts expense. For the year, cash sales are $500,000 and credit sales are $2,000,000. Management

estimates that 2% is the sales percentage to use. What adjusting entry will King Company make to record the bad debts expense?

• Dr. Bad Debts Expense ..................................... 50,000

  Cr. Allowance for Doubtful Accounts .......................... 50,000

• Dr. Bad Debts Expense ................................... 40,000

  Cr. Allowance for Doubtful Accounts .......................... 40,000

• Dr. Bad Debts Expense ......................................... 40,000

  Cr. Accounts Receivable ............................................ 40,000

• Dr. Bad Debts Expense ....................................... 50,000

  Cr. Accounts Receivable ............................................ 50,000

King Company uses the percentage of sales method for recording bad debts expense. For the year, cash sales are $500,000 and credit sales are $2,000,000. Management

estimates that 2% is the sales percentage to use. What adjusting entry will King Company make to record the bad debts expense?

• Dr. Bad Debts Expense ....... 50,000

  Cr. Allowance for Doubtful Accounts ...... 50,000

• Dr. Bad Debts Expense ...................... 40,000

  Cr. Allowance for Doubtful Accounts ............... 40,000

• Dr. Bad Debts Expense .................................. 40,000

  Cr. Accounts Receivable ...................................... 40,000

• Dr. Bad Debts Expense ................................ 50,000

  Cr. Accounts Receivable .................................... 50,000