College Accounting - Ch 9

Accounts receivable are usually collected within a short period of time and are therefore reported as a current liability on the balance sheet.

• True

• False

Which of the following​ statements, regarding notes​ receivable, is​ incorrect?

• A notes receivable is a written promise that a customer will pay a fixed amount of principal plus interest by a certain date in the future.

• All notes receivable are considered long−term assets.

• Notes receivable are sometimes called promissory notes.

• Notes receivable usually have longer terms than accounts receivable.

Credit department employees must have access to cash in order to exercise effective internal control over receivables.

• True

• False

Companies that follow GAAP are required to use the direct write−off method for uncollectible accounts receivable.

• True

• False

Which of the following statements is true of the direct

write−off ​method?

• It follows the matching principle.

• GAAP requires public companies to follow the direct write−off method.

• It is only suitable for small companies that have very few uncollectible receivables.

• It results in more accurate net income than any other method.

When an account is written off using the direct

write−off ​method, the company debits Accounts Receivable.

• True

• False

If a customer makes payment on a receivable that has already been written​ off, the receivable account is reestablished.

• True

• False

The Allowance for Bad Debts account​ ___________.

• increases with a debit

• is a liability account

• holds the pool of​ "unknown" uncollectible accounts

• is added to accounts receivable

Which of the following is NOT a basic method used to estimate bad​ debts?

• aging−of− receivables

  method

• percent−of−net

  income method

• percent−of−sales

  method

• percent−of− receivables

  method

Bad Debt Expense is not debited when a company writes off an account receivable when using the allowance method because the company has already recorded the Bad Debt Expense as an adjusting entry.

• True

• False