T1 Accounting for Bad and Doubtful Debts

Accounts Receivable refers to

• Amounts owed by customers

• Amounts owed to suppliers

• Amounts received during the normal course of business

• All of these are correct

A bad debt is

• An amount set aside in case customers don't pay

• An amount that cannot be collected from the customer for some reason

• Write-off method that meets GAAP and the Matching principle

• None of these answers are correct

Two methods of accounting for uncollectible accounts are the

• allowance method and the accrual method.

• direct write-off method and the accrual method.

• direct write-off method and the allowance method.

• allowance method and the net realizable method.

Bad debts can be classified as:

• a current asset

• a current liability

• an expense

• a revenue

Under the direct write-off method of accounting for uncollectible accounts, Bad Debt Expense is debited

• when a credit sale is past due.

• when an account is determined to be uncollectible.

• at the end of each accounting period.

• whenever a pre-determined amount of credit sales have been made.

The journal entry when using the direct write-off approach for an uncollectible account?

• Provision for Doubtful Debts is debited; Accounts receivable is credited

• Sales return account is debited; cash account is credited

• Accounts receivable & GST is debited; Bad debts expense is credited

• Bad debts expense & GST is debited; accounts receivable is credited

Advantages of the direct writeoff method include...

• It meets GAAP rules and the matching principle

• No estimation of the amount is needed and the expense is recorded at the time of default

• Thoeretically it is the correct method

• All of these answers are true

Disadvantages of the direct writeoff method include...

• It doesn't meet Generally Accepted Accounting Principles

• It doesn't meet the matching principle

• Thoeretically it is the incorrect method

• All of these answers are true

Using the direct method, what is the missing entry?

• Provision for Doubtful Debts

• Bad Debts expense

• Sales Revenue

• None of these are correct

Under the allowance method

• Bad debts are anticipated before they occur

• Estimate is made money not expected to be received

• Create a provision for bad debts

• All of these are true about the allowance method