ACCOUNTING FOR ACCOUNTS RECEIVABLE

The journal entry for recording accounts receivable is:

• Dr. Sales; Cr. Accounts Receivable

• Dr. Accounts Receivable: Cr. Sales

• Dr. Cash; Cr. Sales

• Dr. Sales; Cr. Accounts Payable

The payment terms 2/10, n/30 tell us that:

• a 10% discount will be awarded if the payment is made within 2 days of invoice date; otherwise, the full amount is payable within 30 days of invoice date.

• a 2% discount will be awarded if the payment is made within 10 months of invoice date; otherwise, the full amount is payable within 30 months of invoice date.

• a 2% discount will be awarded if the payment is made within 10 days of invoice date; otherwise, the full amount is payable within 30 days of invoice date.

• a 0.5% discount will be awarded if the payment is made within 10 days of invoice date; otherwise, the full amount is payable within 30 days of invoice date.

The cash discount (also known as purchase discount or sale discount) is given to customers for:

• early payments

• bulk purchase

• frequent purchases

• good business relations

The accounts receivable that cannot be collected because of their bankruptcy or another reason are termed as:

• collectible accounts

• bad customers

• doubtful accounts

• uncollectible accounts

Under allowance method, the journal entry to record uncollectible accounts expense is:

• Allowance for Doubtful Debt Accounts Dr. & Bad Debts Accounts Cr.

• Bad Debts Accounts Dr. & Allowance for Doubtful Debt Accounts Cr.

• Bad Debts Accounts Dr. & Accounts Receivable Cr.

• Accounts Receivable Dr. & Bad Debts Accounts Cr.

The Fortune Company uses allowance method to recognize uncollectible accounts expense. It provides you the following selected information:

Accounts receivable on December 31, 2017: RM380,000 Required balance in Allowance for Doubtful Accounts account on December 31, 2017: RM3,000 Existing balance in Allowance for Doubtful Accounts account on December 31, 2017: RM2,500

The journal entry required to recognize uncollectible accounts expense on December 31, 2017 is:

• Bad Debts Expense 500 Dr. & Accounts Receivable 500 Cr.

• Bad Debts Expense 2,500 Dr. & Accounts Receivable 2,500 Cr.

• Bad Debts Expense 500 Dr. & Allowance for Doubtful Debts Accounts 500 Cr.

• Bad Debts Expense 3,000 Dr. & Allowance for Doubtful Debts Accounts 3,000 Cr.

Under allowance method, the journal entry to write off an uncollectible account is:

• Allowance for Doubtful Accounts Dr. & Accounts Receivable Cr.

• Accounts receivable Dr. & Allowance for Doubtful Accounts Cr.

• Bad Debts Expense Dr. & Accounts Receivable Cr.

• Accounts Receivable Dr. & Bad Debts Expense Cr.

Under direct write off method, the journal entry to recognize uncollectible accounts expense is:

• Accounts receivable Dr.; Sales Cr.

• Bad Debts Expense Dr.; Sales Cr.

• Bad Debts Expense Dr.; Accounts Receivable Cr.

• Accounts Receivable Cr.; Bad Debts Expense Cr.

Under allowance method, the correct journal entry to reinstate a previously written off account is:

• Allowance for Doubtful Accounts Dr.; Bad Debts Expense Cr.

• Accounts Receivable Dr.; Allowance for Doubtful Accounts Cr.

• Allowance for Doubtful Accounts Dr.; Accounts Receivable Cr.

• Accounts Receivable Dr.; Sales Cr.

The correct journal entry for collection of accounts receivable is:

• Cash Dr.; Accounts Receivable Cr.

• Cash Dr.; Sales Cr.

• Cash Dr.; Accounts Payable Cr.

• Accounts Receivable Dr.; Cash Cr.