Ch 14 Uncollectible Accounts Review Quiz

What is the primary reason for writing off uncollectible accounts?

• To increase the company's income

• To accurately reflect the realizable value of accounts receivable

• To increase the company's tax liabilities

• To comply with the revenue recognition principle

Which method estimates uncollectible accounts based on the age of each account receivable?

• Direct write-off method

• Allowance method

• Aging method

• Percentage of sales method

What is a note receivable?

• A written promise to pay a specified amount of money on demand

• A verbal agreement to pay a specified amount of money at a future date

• A written promise to pay a specified amount of money at a future date

• An informal acknowledgment of a debt

How is the interest on a note calculated?

What is the maturity date of a note?

• The date when the note was issued

• The date when the note is to be paid

• The date when the interest on the note starts accruing

• The date when the note is written off as uncollectible

When using the direct write-off method, what happens when an account is deemed uncollectible?

• The account is immediately written off against revenue

• The account is written off against the allowance for doubtful accounts

• The account balance is transferred to a long-term liability account

• The account is written off against accounts payable

What does aging of accounts receivable help a company determine?

• The total amount of sales made on credit

• The efficiency of the company's inventory management

• The likelihood of accounts receivable being uncollectible

• The total amount of cash available for use

What is the effect of writing off an account receivable on the balance sheet?

• Increase in total assets

• Decrease in total assets

• No effect on total assets

• Increase in total liabilities

Which of the following is true about notes receivable?

• They do not accrue interest

• They are informal agreements that do not need to be in writing

• They can be transferred to another party by endorsement

• They are always due within 30 days

How does the allowance method for uncollectible accounts affect the accounting equation when an account is written off?

• Assets decrease; Equity decreases

• Assets decrease; Liabilities increase

• No effect on Assets; No effect on Liabilities; No effect on Equity

• Assets increase; Liabilities decrease