Doubtful Debt Quiz

What is the purpose of an allowance for doubtful debt?

• To celebrate successful debt collections

• To track employee attendance

• To increase company profits

• To account for the possibility of customers not paying their debts.

How does recognizing an allowance for doubtful debt impact the balance sheet?

• It increases accounts receivable and total assets on the balance sheet.

• It reduces accounts receivable and total assets on the balance sheet.

• It reduces accounts payable and total liabilities on the balance sheet.

• It has no impact on the balance sheet.

Explain the difference between specific and general provisions for doubtful debt.

• General provisions are made for individual debts

• Specific provisions are made for general debts

• Specific provisions are made without any basis

• Specific provisions are made for individual debts based on specific information, while general provisions are made for potential losses in the overall portfolio without specific identification.

What factors should be considered when estimating the allowance for doubtful debt?

• Weather forecast, favorite color, recent news headlines

• Number of employees, office location, company logo design

• Historical bad debt experience, current economic conditions, industry trends, customer creditworthiness, aging of accounts receivable, specific circumstances affecting customers' ability to pay

• Social media followers, website traffic, employee satisfaction survey results

How does the aging of accounts receivable help in determining the allowance for doubtful debt?

• The aging of accounts receivable helps in determining the allowance for doubtful debt by predicting future sales accurately.

• The aging of accounts receivable helps in determining the allowance for doubtful debt by providing insight into the likelihood of collection for different categories of outstanding invoices based on their age.

• The aging of accounts receivable helps in determining the allowance for doubtful debt by reducing the need for bad debt write-offs.

• The aging of accounts receivable helps in determining the allowance for doubtful debt by increasing the credit limit for customers.

What journal entry is made to record the allowance for doubtful debt?

• Credit Bad Debt Expense and Debit Allowance for Doubtful Accounts

• Debit Accounts Receivable and Credit Allowance for Doubtful Accounts

• Debit Bad Debt Expense and Credit Allowance for Doubtful Accounts

• Debit Allowance for Doubtful Accounts and Credit Accounts Payable

What is the impact on the income statement when the allowance for doubtful debt is increased?

• The allowance for doubtful debt will be removed from the income statement.

• There will be no impact on the income statement.

• The impact on the income statement when the allowance for doubtful debt is increased is that the net income will decrease due to higher bad debt expenses.

• The net income will increase due to higher bad debt expenses.

How does the allowance for doubtful debt affect the calculation of net realizable value of accounts receivable?

• The allowance for doubtful debt is subtracted from the net realizable value to determine the total accounts receivable balance.

• The allowance for doubtful debt has no impact on the calculation of net realizable value of accounts receivable.

• The allowance for doubtful debt reduces the total accounts receivable balance to arrive at the net realizable value.

• The allowance for doubtful debt increases the total accounts receivable balance to arrive at the net realizable value.

What are the consequences of not maintaining an adequate allowance for doubtful debt?

• The consequences include inaccurate financial statements, reduced profitability, cash flow issues, and potential legal consequences.

• Increased profitability, accurate financial statements, improved cash flow, no legal consequences

• No impact on financial statements, increased profitability, improved cash flow, legal consequences

• Decreased profitability, accurate financial statements, improved cash flow, no legal consequences

How can a company improve its collection process to reduce the need for an allowance for doubtful debt?

• By avoiding any communication with customers

• By ignoring overdue payments

• By offering unlimited credit to all customers

• By implementing stricter credit policies, conducting thorough credit checks on customers, setting clear payment terms, sending timely reminders, offering discounts for early payments, and establishing effective communication channels.