TRADE AND OTHER RECEIVABLES & ESTIMATION OF DOUBTFUL ACCOUNTS THEORY
1. Trade receivables are CLASSIFIED as current
assets if they are reasonably expected to be
collected
a. Within one year.
b. Within the normal operating cycle.
c. Within one year or within the operating cycle,
whichever is shorter.
d. Within one year or within the operating cycle,
whichever is longer.
2. Nontrade receivables are classified as
current assets only if they are reasonably
expected to be realized in cash
a. Within one year or within the operating cycle,
whichever is shorter.
b. Within one year or within the operating cycle,
whichever is longer.
c. Within the normal operating cycle.
d. Within one year, the length of the operating cycle
notwithstanding.
3. Which of the following statements is true in
relation to presentation of receivables in the
financial position?
a. Trade receivables and nontrade receivables are
shown separately.
b. Nontrade receivables are presented as noncurrent
assets.
c. Trade accounts receivable and trade notes receivable
shall be presented separately.
d. Trade receivables and nontrade receivables which
are currently collectible shall be presented as one line
item called “trade and other receivables.”
4. If the ideal measure of short-term receivables
in the statement of financial position is the
discounted amount of the cash to be received
in the future, failure to follow this practice
usually does not make the statement of
financial position misleading because
a. Most short-term receivables are not interest-bearing.
b. The allowance for doubtful accounts includes a
discount element.
c. The amount of the discount is not material.
d. Most receivables can be sold to a bank or factor.
5. Accounts receivable shall be recognized
initially at
a. Face value
b. Discounted value
c. Maturity value
d. Current value
6. Long-term notes receivable which nominally
bear no interest or an interest which is
unreasonably low shall be recognized initially at
a. Face value
b. Present value
c. Maturity value
d. Current value
7. Credit balances in accounts receivable shall
be classified as
a. Current liability
b. Part of accounts payable
c. Long-term liabilities
d. Deduction from accounts receivable
8. Receivables from subsidiaries shall be
classified as
a. Current assets
b. Noncurrent assets
c. Either as current or noncurrent depending on the
expectation of realizing them within one year or over
one year
d. Partly current and partly noncurrent
9. Where the operating cycle extends beyond
one year because of normal credit terms as in
the case of installment sales of household
appliances
a. It is proper to classify the entire receivables as
current assets with the disclosure of the amount not
realizable within one year, if material.
b. The entire receivables are shown as noncurrent
assets.
c. The portion due in one year is shown as current and
the balance as noncurrent.
d. The receivables are not recognized.
10. In the case of long-term installment
receivable (real estate installment sales) where
a major portion of the receivables will be
collected beyond the normal operating cycle
a. The entire receivables are shown as current without
the 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
disclosure of the amount not currently due.
11. Which method of recording bad debt loss is
consistent with accrual accounting?
a. Allowance method
b. Direct write-off method
c. Percent of sales method
d. Percent of accounts receivable method
Lomboy, April Mae M.
 TRADE AND OTHER RECEIVABLES & ESTIMATION OF DOUBTFUL ACCOUNTS THEORY
12. A method of estimating bad debts that
focuses on the income statement rather than
the statement of financial position is the
allowance method based on
a. Direct write-off
b. Aging the trade accounts receivable
c. Credit sales
d. The balance in the trade accounts receivable
13. A method of estimating uncollectible
accounts that emphasizes asset valuation
rather than income measurement is the
allowance method based on
a. Aging the receivables
b. Direct write-off
c. Gross sales
d. Credit sales less returns and allowances
14. The advantage of relating an entity’s bad
debt experience to accounts receivable is that
this approach
a. Gives a reasonably accurate measurement of
receivables in the statement of financial position.
b. Relates bad debt expense to the period of sale.
c. Is the only generally accepted method for measuring
accounts receivable.
d. Makes estimates of uncollectible accounts
unnecessary.
15. When a specific customer’s account
receivable is written off as uncollectible, what
will be the effect on net income under the
allowance and direct write-off method?
a. No effect under both allowance method and direct
write-off method.
b. Decrease under both allowance methods and direct
write-off method.
c. No effect under allowance method and decrease
under direct write-off method.
d. Decrease under allowance method and no effect
under direct write-off method.
16. When the allowance method of recognizing
uncollectible accounts is used, the entry to
record the write-off of a specific account would
a. Decrease both accounts receivable and the
allowance for uncollectible accounts.
b. Decrease accounts receivable and increase the
allowance for uncollectible accounts
c. Increase the allowance for uncollectible accounts and
decrease net income.
d. Decrease both accounts receivable and net income.
17. When an entity uses the allowance method
for recognizing uncollectible accounts, the
entry to record the write-off of a specific
uncollectible account
a. Affects neither net income nor working capital
b. Affects neither net income nor accounts receivable
c. Decreases both net income and accounts receivable
d. Decreases both net income and working capital
18. When the allowance method for recognizing
bad debt expense is used, the entries at the
time of collection of an account previously
written off would
a. Decrease the allowance for doubtful accounts
b. Increase net income
c. Have no effect on the allowance for doubtful
accounts
d. Have no effect on net income
19. An entity uses the allowance method to
recognize doubtful accounts expense. What is
the effect of a collection of an account
previously written off?
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 in allowance for doubtful accounts and no
effect on doubtful accounts expense
d. Increase in allowance for doubtful accounts and
decrease in doubtful accounts expense
20. When an accounts receivable aging
schedule is prepared, a series of computation is
made to determine the estimated uncollectible
accounts. The resulting amount from this aging
schedule
a. When added to the total accounts written off during
the year is the desired credit balance of the allowance
for doubtful accounts at year-end.
b. Is the amount of doubtful accounts expense for the
year
c. Is the amount that should be added to the beginning
allowance for doubtful accounts to get the doubtful
accounts expense for the year.
d. Is the amount desired credit balance of the
allowance for doubtful accounts to be reported at
year-end.
21. Which of the following methods of
determining bad debt expense does not match
expense and revenue?
a. Charging bad debts with a percentage of sales
b. Charging bad debts with a percentage of accounts receivable under the
allowance method
c. Charging bad debts with an amount derived from aging the accounts
receivable under the allowance method
Lomboy, April Mae M.
 TRADE AND OTHER RECEIVABLES & ESTIMATION OF DOUBTFUL ACCOUNTS THEORY
d. Charging bad debts as accounts written off as
uncollectible
22. Which of the following methods of
determining bad debt expense most closely
matches expense to revenue?
a. Charging bad debts as accounts written off as
uncollectible
b. Charging bad debts with a percentage of sales for
that period
c. Estimating the allowance for doubtful accounts as a
percentage of accounts receivable
d. Estimating the allowance for doubtful accounts by
aging the accounts receivable
23. When the allowance method of recognizing
bad debt expense is used, the allowance for
doubtful accounts would decrease when
a. Specific account receivable is collected
b. Account previously written of is collected
c. Account previously written off becomes collectible
d. Specific uncollectible account is written off
24. When comparing the allowance method of
accounting for bad debts with the direct write-
off method, which of the following is true?
a. The direct write-off method is exact and also better
illustrates the matching principle.
b. The allowance method is less exact but it better
illustrates the matching principle.
c. The direct write-off method is theoretically superior.
d. The direct write-off method requires two separate
entries to write off an uncollectible account.
25. Which of the following is not acceptable in
estimating uncollectible accounts receivable?
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 a
percentage of accounts receivable at the end of a
period.
c. The estimate of uncollectible accounts is based on an
aging schedule.
d. No estimate of uncollectible accounts is made but
accounts are written off when it is determined they
cannot be collected.
26. Estimation of uncollectible accounts
receivable based on a percentage of sales
a. Emphasizes measurement of the net realizable value
of accounts receivable.
b. Emphasizes measurement of bad debt expense.
c. Emphasizes measurement of total assets.
d. It is only acceptable for tax purposes.
27. When the allowance method of recognizing
bad debt expense is used, the entry to record
the write-off of a specific uncollectible account
would decrease
a. Allowance for doubtful accounts
b. Net income
c. Net realizable value of accounts receivable
d. Working capital
28. The entry debiting accounts receivable and
crediting allowance for doubtful accounts
would be made when
a. A customer pays its account balance
b. A customer defaults on its account
c. A previously defaulted customer pays its
outstanding balance
d. Estimated uncollectible receivables are too low.
29. A debit balance in the allowance for
doubtful accounts
a. Should never occur
b. Is always the result of management providing a large
enough allowance in under to manage earnings.
c. May occur before the end-of-period adjustment for
uncollectible accounts
d. May exist even after the end-of-period adjustment
for uncollectible accounts
30. When the direct write-off method of
recognizing bad debts expense is used, the
entry to write off a specific customer account
would
a. Increase net income
b. Have no effect on net income
c. Increase accounts receivable and increase net income
d. Decrease accounts receivable and decrease net
income
31. Which of the following does not change the
balance in accounts receivable?
a. Return on credit sales
b. Collection from customers
c. Bad debts expense adjusting entry
d. Write-off
32. Which is recorded by a credit to accounts
receivables?
a. Sale of inventory on account
b. Estimating the allowance for doubtful accounts
c. Estimating annual sales return
d. Write-off of accounts receivable
33. Which of the following principle primarily
supports the use of allowance for doubtful
accounts?
a. Continually principle
b. Full disclosure principle
c. Matching principle
Lomboy, April Mae M.
 TRADE AND OTHER RECEIVABLES & ESTIMATION OF DOUBTFUL ACCOUNTS THEORY

d. Conservatism c. Bad debt expense is measured directly and the

allowance for doubtful accounts is measured directly
d. Bad debt expense is measured directly and the
allowance for doubtful accounts is measured indirectly

34. Why is the allowance method preferred over 40. Which concepts relates to the allowance
the direct write-off method of accounting for method in accounting for uncollectible
bad debts? accounts receivable?

a. Allowance method is used for tax purposes a. Bad debt expense is an estimate based on historical
b. Estimates are used and prospective information
c. Determining worthless accounts under direct write- b. Bad debt expense is the actual amount determined to
off method is difficult to do be uncollectible
d. Improved matching bad debts expense with revenue c. Bad debts expense is an estimate based only on aging
of A/R
d. Bad debt expense is management determination of
35. In recording cash discounts related to which accounts are considered doubtful.
accounts receivable, which is more
theoretically correct? 41. Which is not permitted in accounting for
uncollectible accounts receivable?
a. Net method
b. Gross method a. Percentage of accounts receivable
c. Allowance method b. Percentage of sales
d. All the tree are theoretically correct c. Direct write-off
d. Aging of accounts receivable
36. All of the following are problems associated
with the measurement of accounts receivable,
except

a. Uncollectible accounts
b. Returns
c. Cash discounts under net method
d. Allowance granted

37. Collection of accounts receivable previously

written off results in an increase in cash and an
increase in

a. Accounts receivable
b. Allowance for doubtful accounts
c. Bad debts expense
d. Retained earnings

38. Which is an accurate method of determining

the amount of the adjustment to bad debt
expense?

a. A percentage of sales adjusted for the balance in the

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

39. When an aging approach is used for

estimating uncollectible accounts

a. Bad debt expense is measured indirectly and the

allowance for doubtful accounts is measured directly
b. Bad debt expense is measured indirectly and the
allowance for doubtful accounts is measured indirectly

Lomboy, April Mae M.