Accounting Chapter 14

The allowance method of accounting for uncollectible accounts does not comply with generally accepted accounting principles

• True

• False

When a customer account is written off under the allowance method, the book value of accounts receivable decreases

• True

• False

Answer explanation

The book value of accounts receivable reported on the Balance Sheet, represents an estimate of the total amount of accounts receivable the business expects to collect in the future.

A note provides a business with legal evidence of a debt in the event it becomes necessary to go to court to collect

• True

• False

The total assets are reduced when a business accepts a note receivable from a customer needing an extension of time to pay an account receivable

• True

• False

The book value of accounts receivable must be a resonable and unbiased estimate of the money the business expects to collect in the future

• True

• False

The accounting concept Neutrality is applied when the process of making accounting estimates is free from bias

• True

• False

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

• True

• False

Answer explanation

Estimating uncollectible accounts expense at the end of a fiscal period records the expense of uncollectible accounts in the same period as the RELATED REVENUE!

Accounting Concept: Matching Expenses with Revenue

The account Allowance for Uncollecible Accounts has a natural credit balance

• True

• False

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

• True

• False

The account Allowance for Uncollectible Accounts is reported on the Income Statement

• True

• False

Answer explanation

Income Statement accounts include

1. Revenue

2. Cost of Mdse. Sold

3. Expenses