Ch. 14 True/False Exam Review

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

• True

• False

Answer explanation

Yes, opposite of Accounts Receivalbe, which is debit.

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

• True

• False

Answer explanation

With each sale on account, a business takes the risk that the customer will never pay the amount owed. This risk is an expense of doing business. The expense must be recorded in the same accounting period that the revenue is earned. Accurate reporting requires that expenses be recorded in the fiscal period in which the expenses contribute to earning revenue. >> App. A: Matching Expenses with Revenue

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

• True

• False

Answer explanation

The Balance Sheet because it's connected to Accounts Receivable, which 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 accounting concept Conservatism is applied when the process of making accounting estimates is free from bias.

• True

• False

Answer explanation

Nope, this is called, Neutrality.

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

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

• True

• False

Answer explanation

How would they know who won't be paying them?

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 $4,300.00 credit to Allowance for Uncollectible Accounts.

• True

• False

Answer explanation

Estimate is 4,000

The 300 credit balance means we have to subtract that from the estimate = 3700

When a customer account is written off under the allowance method, book value of Accounts Receivable decreases.

• True

• False

Answer explanation

The book value of accounts receivable is the same before and after writing off an uncollectible account. This is true because the same amount is deducted from both Accounts Receivable and Allowance for Uncollectible Accounts.

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

Percents are based on past experience of the business.