ACCT Ch 14

The expense of an uncollectible account should be recorded in the accounting period that

the account becomes uncollectible.

• True

• False

Answer explanation

Uncollectible Accounts Expense must be recorded in the same period as the related revenue. An estimated amount of uncollectible accounts (allowance) is credited & uncollectible accounts expense is debited.

The account, Allowance for Uncollectible Accounts, has a normal credit balance.

• True

• False

A business usually knows at the end of the fiscal year which customer accounts will become

uncollectible.

• True

• False

Answer explanation

It is impossible to know which accounts will become uncollectible. GAAP states that businesses must estimate its uncollectible accounts.

The account, Allowance for Uncollectible Accounts, is reported on the income statement.

• True

• False

Answer explanation

Allowance for uncollectible accounts (contra to accounts receivable) is on the balance sheet.

The book value of accounts receivable must be a reasonable and unbiased estimate of the

money the business expects to collect in the future.

• True

• False

The percent of sales method of estimating uncollectible accounts expense assumes that a

portion of every dollar of sales on account will become uncollectible.

• True

• False

The accounting concept, Conservatism, is applied when the process of making accounting

estimates is free from bias.

• True

• False

Answer explanation

The term is NEUTRALITY.

The percent of each age group of an accounts receivable aging that is expected to become

uncollectible is determined by the Securities and Exchange Commission.

• True

• False

Answer explanation

Businesses determine their own calculations based on prior receipts or industry standards.

The adjusting entry for uncollectible accounts does not affect the balance of the Accounts

Receivable account.

• True

• False

A business having a $300.00 credit balance in Allowance for Uncollectible Accounts and

estimating its uncollectible accounts to be $4,000.00 would record a $3,700.00 credit to

Allowance for Uncollectible Accounts.

• True

• False