Week 2 Theory of Accounts Part 2 - ACCOUNTS RECEIVABLE QUIZ

A method of estimating doubtful accounts that emphasizes asset valuation is the allowance method
based on

Select one:
a. Direct writeoff
b. Gross sales
c. Aging of accounts receivable
d. Credit sales less returns and allowances

Nontrade receivables are classified as current assets only if they are reasonably expected to be realized in
cash

Select one:
a. Within one year or within the operating cycle, whichever is shorter.
b. Within the normal operating cycle.
c. Within one year, the length of the operating cycle notwithstanding.
d. Within one year or within the operating cycle, whichever is longer.

Which is an accurate method of determining the amount of the adjustment to bad debt expense?

Select one:
a. An amount derived from aging accounts receivable and not adjusted for the balance in the
allowance
b. A percentage of sales adjusted for the balance in the allowance
c. A percentage of sales not adjusted for the balance in the allowance
d. A percentage of accounts receivable not adjusted for the balance in the allowance

What is the journal entry when writing off an account as uncollectible under the allowance method?

Select one:
a. Debit doubtful accounts expense, credit allowance for doubtful accounts
b. Debit allowance for doubtful accounts, credit doubtful accounts expense
c. Debit allowance for doubtful accounts, credit accounts receivable
d. Debit accounts receivable, credit allowance for doubtful accounts

Under the direct method, the journal entry to write off a specific customer account would

Select one:
a. Decrease accounts receivable and decrease net income
b. Increase net income
c. Have no effect on net income
d. Increase accounts receivable and increase net income

In case of long-term real estate instalment sales

Select one:
 a. The entire receivables are shown as current without disclosure of the amount not currently due.
b. The entire receivables are shown as noncurrent.
c. Only the portion currently due is shown as current and the balance as noncurrent.
d. The entire receivables are shown as current with the disclosure of the amount not currently due.

How can accounting for bad debts be used for earnings management?

Select one:
a. Changing the percentage of sales recorded as bad debt expense
b. Reversing previous writeoff
c. Using an aging of accounts receivable
d. Determining which accounts to write off

Which accounting principle primarily supports the use of allowance for doubtful accounts?

Select one:
a. Matching principle
b. Full disclosure principle
c. Conservatism
d. Continuity principle

The advantage of relating the bad debt experience to accounts receivable is that this approach

Select one:
a. Is the only generally accepted method for measuring accounts receivable
b. Relates bad debt loss to the period of sale
c. Makes estimate of uncollectible accounts necessary
d. Gives reasonably correct measurement of accounts receivable in the statement of financial
position

What is the journal entry to record the collection of accounts receivable previously written off when using
the allowance method?

Select one:
a. Debit accounts receivable, credit allowance for doubtful accounts
b. Debit allowance for doubtful accounts, credit accounts receivable
c. Debit doubtful accounts expense, credit allowance for doubtful accounts
d. Debit allowance for doubtful accounts, credit doubtful accounts expense
Which method of determining bad debt expense best achieves the matching concept?

Select one:
a. Direct writeoff
b. Percentage of average accounts receivable
c. Percentage of ending accounts receivable
d. Percentage of sales
Which of the following methods of determining bad debt expense most closely matches expense with
revenue?

Select one:
a. Charging bad debts only as accounts are written off as uncollectible
b. Estimating the allowance for doubtful accounts as a percentage of accounts receivable
c. Estimating the allowance for doubtful accounts by aging of accounts receivable
d. Charging bad debts with a percentage of sales

Under the allowance method, the entries at the time of collection of an account previously written off
would

Select one:
a. Increase net income
b. Decrease the allowance for doubtful accounts
c. Have no effect on net income
d. Have no effect on the allowance for doubtful accounts

Which of the following methods of determining bad debt expense does not match expense and revenue?

Select one:
a. Charging bad debts as accounts are written off as uncollectible
b. Charging bad debts with a percentage of accounts receivable under the allowance method
c. Charging bad debts with an amount derived from aging of accounts receivable under the
allowance method
d. Charging bad debts with a percentage of sales under the allowance method

Which statement is incorrect regarding receivables?

Select one:
a. Receivables are financial assets.
b. Nontrade receivable may be reported as separate items in the statement of financial position
c. Accounts receivable are written promises of the purchaser to pay for goods or services
d. Receivables are financial instruments.

When the allowance method is used, the entry to record the writeoff of a specific account would

Select one:
a. Decrease both accounts receivable and allowance for doubtful accounts
b. Increase both accounts receivable and the allowance for doubtful accounts
c. Decrease accounts receivable and increase allowance for doubtful accounts
d. Increase accounts receivable and decrease the allowance for doubtful accounts

Trade receivables are classified as current assets if they are reasonably expected to be collected

Select one:
a. Within one year or within the operating cycle, whichever is shorter.
b. Within the normal operating cycle.
 c. Within one year.
d. Within one year or within the operating cycle, whichever is longer.

When an accounts receivable aging schedule is prepared, the resulting amount from the computation

Select one:
a. Is the amount that should be added to the beginning allowance for doubtful accounts to get the
doubtful accounts expense for the year
b. When added to the total accounts written off during the year is the desired credit balance of the
allowance for doubtful accounts at yearend
c. Is the amount of doubtful accounts expense for the year
d. Is the amount of desired credit balance of the allowance for doubtful accounts to be reported at
yearend

Under the allowance method, what is the impact of a collection of an account previously written off?

Select one:
a. No effect on both allowance for doubtful accounts and doubtful accounts expense
b. No effect on allowance for doubtful accounts and decrease in doubtful accounts expense
c. Increase allowance for doubtful accounts and no effect on doubtful accounts expense
d. Increase in allowance for doubtful accounts expense and decrease in doubtful accounts expense

Trade receivables include

Select one:
a. Tax refund receivable
b. Claim against insurance entity
c. Advances to officers
d. All of these are not included in trade receivables

The entry debiting accounts receivable and crediting allowance for doubtful accounts would be made
when

Select one:
a. Estimated uncollectible receivables are too low.
b. A customer defaults on the account.
c. A previously defaulted customer pays the outstanding balance.
d. A customer pays account balance.

What is the presentation of receivables from officers, employees or affiliated entities?

Select one:
a. By means of footnote only
b. By offset to equity
c. As trade notes and accounts receivable
d. As assets but separately from other receivables
Which should be included in accounts receivable reported in the statement of financial position?

Select one:
a. Notes receivable
b. Allowance for doubtful accounts
c. Advances to related parties
d. Interest receivable

Estimation of uncollectible accounts receivable based on percentage of sales

Select one:
a. Emphasized measurement of bad debt expense
b. Emphasizes measurement of accounts receivable
c. Emphasizes measurement of total assets
d. Is acceptable only for tax purposes

Where the operating cycle extends beyond one year because of normal credit terms as in the case of
instalment sales

Select one:
a. The entire receivables are shown as noncurrent.
b. The receivables are not recognize
c. The portion due in one year is shown as current and the balance as noncurrent.
d. The entire receivables are classified as current with disclosure of the amount not realizable within
one year.

When a specific account receivable is written off as uncollectible, what will be the effect on net income?

Select one:
a. Decrease under both allowance method and direct writeoff method
b. Decrease under allowance method and no effect under direct writeoff method
c. No effect under allowance method and decrease under direct writeoff method
d. No effect under both allowance method and direct writeoff method

Why is the allowance method preferred over the direct writeoff method of accounting for bad debts?

Select one:
a. Estimates are used
b. Improved matching of bad debt expense with revenue
c. Allowance method is used for tax purposes
d. Determining worthless accounts under direct writeoff method is difficult to do

Which concept relates to the allowance method in accounting for uncollectible accounts receivable?

Select one:
a. Bad debt expense is an estimate that is based only on aging of accounts receivable.
 b. Bad debt expense is based on the actual amount determined to be uncollectible.
c. Bad debt expense is a management determination.
d. Bad debt expense is an estimate that is based on historical and prospective information.

In recording cash discounts related to accounts receivable, which is more theoretically correct?

Select one:
a. Net method
b. Allowance method
c. All three methods are theoretically correct
d. Gross method

Credit balances in accounts receivable are classified as

Select one:
a. Current liabilities
b. Long term liabilities
c. Deduction from accounts receivable
d. Part of accounts payable

Which of the following is not acceptable in estimating uncollectible accounts receivable?

Select one:
a. The estimate of uncollectible accounts is based on a percentage of sales for the period
b. The estimate of uncollectible accounts is based on aging of accounts receivable.
c. The estimate of uncollectible accounts is based on a percentage of the accounts receivable at
yearend
d. No estimate of uncollectible accounts is made but accounts are written off when it is determined
that the accounts cannot be collected

Receivables from subsidiaries are classifies as

Select one:
a. Current assets
b. Noncurrent assets
c. Partly current and partly noncurrent
d. Either as current of noncurrent depending on the realization period whether one year or over one
year

Under the allowance method, the journal entry to record the writeoff of a specific uncollectible account

Select one:
a. Affects neither net income nor working capital
b. Decreases both net income and accounts receivable
c. Affects neither net income nor accounts receivable
d. Decreases both net income and working capital
What is the journal entry for doubtful accounts expense under the allowance method?

Select one:
a. Debit doubtful accounts expense, credit allowance for doubtful accounts
b. Debit allowance for doubtful accounts, credit doubtful accounts expense
c. Debit accounts receivable, credit allowance for doubtful accounts
d. Debit allowance for doubtful accounts, credit accounts receivable

Which is not permitted in accounting for uncollectible accounts receivable?

Select one:
a. All of the choices are acceptable
b. Direct writeoff method
c. Percentage of accounts receivable using allowance method?
d. Percentage of sales using allowance method

All are acquired when classifying receivables, except

Select one:
a. Indicate the receivables classified as current and noncurrent.
b. All of these are require
c. Disclose any receivables pledged as collateral
d. Disclose all significant concentrations of credit risk arising from receivables.

All of the following are problems associated with the measurement of accounts receivable, except

Select one:
a. Cash discounts under the net method
b. Returns
c. Uncollectible accounts
d. Allowance granted

Which should be recorded in accounts receivable?

Select one:
a. Receivable from officers
b. Receivable from subsidiaries
c. Sales on account
d. Dividends receivable

A method of estimating bad debts that focuses on the income statement is the allowance method based
on

Select one:
a. The balance in trade accounts receivables
b. Direct Writeoff
c. Aging of trade accounts receivables
d. Credit sales
Which method of recording bad debt loss is consistent with accrual accounting?

Select one:
a. Percentage of sales method
b. Allowance method
c. Percent of accounts receivable method
d. Direct write-off method