Generally, when a customer uses a credit card issued by a bank, the firm records the sale as a cash sale.
True / False
True
The Credit Card Expense account should always be shown on the income statement as a discount deducted from sales to determine the net amount received from the sale.
True / False
False
In order to meet the requirements of the matching principle, the direct write-off method of recording bad debts should be used.
True / False
False
The recognition of bad debts through the allowance method of accounting for bad debts is accomplished with the closing entry that closes the Bad Debt Expense account to the Income Summary account.
True / False
False
The Allowance for Doubtful Accounts account is a contra account.
True / False
True
Estimating bad debts by focusing on the income statement would involve the determination of bad debts based on the history of uncollected credit sales.
True / False
True
Using an aging of accounts receivable to estimate the amount of bad debt expense is one example of estimating bad debts by focusing on the balance sheet.
True / False
True
The acceptability of the direct write-off approach to recognizing bad debts is provided through the matching principle.
True / False
False
A 60-day, 6%, $1,000 note receivable has a maturity value of $1,010.
True / False
True
A 60-day note that is dated June 23 will have a maturity date of August 23.
True / False
False
When a note receivable is dishonoured, the firm has a contingent liability until the dishonoured note is either paid or written off as a bad debt.
True / False
False
The buyer of accounts receivable must pay a factoring fee to the seller.
True / False
False
A potential obligation that may become a realized obligation is called a contingent liability.
True / False
True
The maturity date of a 90-day note receivable dated August 29 is November 28.
True / False
False
To write-off a bad debt using the allowance method requires a debit to the Bad Debt Expense account.
True / False
False
Bad debts are estimated to be 3% of the net sales of $120,000. The Allowance for Doubtful Accounts account currently has a credit balance of $100. The amount of the adjusting entry will be $3,700.
True / False
False
Amounts due from customers for credit sales are called accounts _______________.
RECEIVABLE
A process of classifying accounts receivable in terms of how long they have been outstanding is called an _______________ of accounts receivable.
AGING
The Allowance for Doubtful Accounts is a _______________ account with a balance equal to the estimated amount of accounts receivable that will be uncollectible.
CONTRA ASSET
The accounts of customers who do not pay what they have promised to pay are called _______________.
BAD DEBTS
An obligation to make a future payment if, and only if, an uncertain future event actually occurs is called a _______________ liability.
CONTINGENT
A method of accounting for bad debts that records the loss from an uncollectible account receivable at the time it is determined to be uncollectible is called the _______________ method of accounting for bad debts.
DIRECT WRITE-OFF
When a note’s maker is unable or refuses to pay at maturity the maker is _______________ the note.
DISHONOURING
In the formula of P X R X T = I, P is the principal, R is the rate, T is the time, and I is the _______________.
INTEREST
One who signs a note and promises to pay it at maturity is the _______________(MAKER or PAYEE) of the note.
MAKER
A 60-day note that is dated and issued on October 1 will have a _______________ date of December 1.
MATURITY
The signer of a promissory note has agreed to pay $3,000, plus $450 interest, to the payee of the note, in thirty days. The $3,000 is referred to as the _______________ of the note.
PRINCIPAL
A _______________ note is a written promise to pay a specified amount of money either on demand or at a definite future date.
PROMISSORY
A firm expects that it can generate $450,500 in cash by converting all of its assets into cash. The $450,500 can be referred to as the _______________ value of the assets.
REALIZABLE
Amounts due from customers for credit sales.
Accounts receivable
A process of classifying accounts receivable in terms of how long they have been outstanding for the purpose of estimating the amount of uncollectible accounts.
Aging accounts receivable
A contra asset account with a balance equal to the estimated amount of accounts receivable that will be uncollectible; also called the Allowance for Uncollectible Accounts.
Allowance for Doubtful Accounts
An accounting procedure that (1) estimates and reports bad debts expense from credit sales during the period of the sales, and (2) reports accounts receivable at the amount of cash proceeds that is expected from their collection (their estimated realizable value).
Allowance method
The accounts of customers who do not pay what they have promised to pay; the amount is an expense of selling on credit; also called uncollectible accounts.
Bad debts
An obligation to make a future payment if, and only if, an uncertain future event actually occurs.
Contingent liability
A method of accounting for bad debts that records the loss from an uncollectible account receivable at the time it is determined to be uncollectible; no attempt is made to estimate uncollectible accounts or bad debts expense.
Direct write-off method
When a note’s maker is unable or refuses to pay at maturity.
Dishonouring a note
The charge for using (not paying) money until a later date.
Interest
One who signs a note and promises to pay it at maturity.
Maker of a note
Requires expenses to be reported in the same accounting period as the sales they helped produce.
Matching principle
The date on which a note and any interest are due and payable.
Maturity date of a note
The one to whom a promissory note is made payable.
Payee of a note
The amount that the signer of a promissory note agrees to pay back when it matures, not including the interest.
Principal of a note
A written promise to pay a specified amount of money either on demand or at a definite future date.
Promissory note
The expected proceeds from converting assets into cash.
Realizable value
