Accounting Chapter 17

What are uncollectible accounts?

Accounts receivable balances that cannot be collected from credit customers.

What is the allowance method?

A method of estimating uncollectible accounts expense in the same fiscal period as the related credit sales.

What is Allowance for Uncollectible Accounts?

A contra-asset account that represents the estimated uncollectible portion of accounts receivable.

What is the normal balance of Allowance for Uncollectible Accounts?

Credit.

How is Allowance for Uncollectible Accounts classified?

Contra asset.

What is Uncollectible Accounts Expense?

An expense account debited to record losses resulting from uncollectible credit sales.

What is writing off an account?

Canceling a customer account balance in both the accounts receivable general ledger and subsidiary ledger when it is determined to be uncollectible.

What is the matching expenses with revenue concept?

The accounting concept requiring expenses to be recognized in the same period as the related revenue.

What is the book value of accounts receivable?

The net amount of accounts receivable expected to be collected.

What is the formula for book value of accounts receivable?

Accounts Receivable minus Allowance for Uncollectible Accounts.

What is the formula for estimated uncollectible accounts expense?

Total Sales on Account multiplied by the Estimated Percentage.

Why does the allowance method follow the matching concept?

It records estimated uncollectible accounts expense in the same fiscal period as the related credit sales.

Does the year-end adjusting entry change Accounts Receivable?

No. It debits Uncollectible Accounts Expense and credits Allowance for Uncollectible Accounts.

What is the journal entry to estimate uncollectible accounts expense?

Debit Uncollectible Accounts Expense; Credit Allowance for Uncollectible Accounts.

What is the journal entry to write off a customer account?

Debit Allowance for Uncollectible Accounts; Credit Accounts Receivable.

Does writing off an account change the book value of accounts receivable?

No. Accounts Receivable and Allowance for Uncollectible Accounts decrease by the same amount.

What happens to Accounts Receivable when an account is written off?

It decreases by the amount of the customer's account balance.

What happens to Allowance for Uncollectible Accounts when an account is written off?

It decreases by the amount of the customer's account balance.

Why must a previously written-off account be reopened before collecting cash?

To restore the customer's account so the payment can be properly recorded in the subsidiary ledger.

What is the journal entry to reopen a previously written-off account?

Debit Accounts Receivable; Credit Allowance for Uncollectible Accounts.

What is the journal entry to collect cash from a reopened account?

Debit Cash; Credit Accounts Receivable.

What is written in the Item column when an account is written off?

Write-off or Uncollectible.

What is written in the Item column when an account is reopened?

Reopen or Reinstated.

What does net realizable value mean?

The amount of accounts receivable expected to be collected after subtracting the allowance.

What is a contra-asset account?

An account that reduces the balance of a related asset account.

Why is the allowance method used instead of waiting for an actual write-off?

To recognize estimated uncollectible expense in the same period as the related sales revenue.

A company has $100,000 in credit sales and estimates 2% will be uncollectible. What is the estimated expense?

$2,000 ($100,000 × 0.02).

A company has $250,000 in credit sales and estimates 1.5% will be uncollectible. What is the estimated expense?

$3,750 ($250,000 × 0.015).

A company has $80,000 in credit sales and estimates 0.5% will be uncollectible. What is the estimated expense?

$400 ($80,000 × 0.005).

Accounts Receivable is $90,000 and Allowance for Uncollectible Accounts is $12,000. What is the book value?

$78,000 ($90,000 − $12,000).

Accounts Receivable is $125,000 and Allowance for Uncollectible Accounts is $8,500. What is the book value?

$116,500 ($125,000 − $8,500).

A company writes off a $500 customer account. What happens to Accounts Receivable?

It decreases by $500.

A company writes off a $500 customer account. What happens to the allowance?

It decreases by $500.

Accounts Receivable is $50,000 and the allowance is $3,500. What is the book value before a $648.25 write-off?

$46,500.

What is the book value after the $648.25 write-off in the previous example?

$46,500. The book value does not change after a write-off.

Performance Food Group cannot collect 0.1% of sales, totaling $5.5 million. What are its estimated annual sales?

$5.5 billion ($5.5 million ÷ 0.001).

Why is ethical conduct important when estimating uncollectible accounts?

It ensures estimates are unbiased, supportable, and not manipulated to manage earnings.

Why is continuous education important for accountants?

It helps accountants stay current with accounting standards, industry practices, and economic conditions.