Chapter 14- Accounting 1

t or f: Interest income is classified as revenue from normal operations.

false

t or f: The account Allowance for Uncollectible Accounts has a natural credit balance.

true

t or f: The direct write-off method complies with generally accepted accounting principles.

false

t or f: A business usually knows at the end of the fiscal year which customer accounts will become uncollectible.

false

t or f: The book value of accounts receivable must be a reasonable and unbiased estimate of the money the business expects to collect in the future.

true

t or f: The direct write-off method matches the expense of uncollectible accounts to the revenue that is earned in the same period.

false

t or f: The account Allowance for Uncollectible Accounts is reported on the income statement.

false

t or f: The expense of an uncollectible account should be recorded in the accounting period that the account becomes uncollectible.

false

t or f: When a customer account is written off under the allowance method, the book value of accounts receivable decreases.

false

t or f: The adjusting entry for uncollectible accounts reduces the balance of the Accounts Receivable account.

false

t or f: Interest rates are stated as a percentage of the principal.

true

t or f: Total assets are reduced when a business accepts a note receivable from a customer needing an extension of time to pay an account receivable.

false

t or f: The allowance method of accounting for uncollectible accounts does not comply with generally accepted accounting principles.

false

t or f: The percent of each age group of an accounts receivable aging that is expected to become uncollectible is determined by generally accepted accounting principles.

false

t or f: A business having a $400.00 debit balance in Allowance for Uncollectible Accounts and estimating its uncollectible accounts using accounts receivable aging to be $5,000.00 would record a $5,400.00 credit to Allowance for Uncollectible Accounts.

true

t or f: The accounting concept Neutrality is applied when the process of making accounting estimates is free from bias.

true

t or f: A note provides a business with legal evidence of a debt in the event it becomes necessary to go to court to collect.

true

t or f: When using the allowance method, writing off an uncollectible account does not change the net realizable value of accounts receivable.

true

t or f: A business having a $400.00 debit balance in Allowance for Uncollectible Accounts and estimating its uncollectible accounts using accounts receivable aging to be $5,000.00 would record a $5,400.00 credit to Allowance for Uncollectible Accounts.

true

v: Accounts receivable that cannot be collected.

uncollectible accounts

v: Crediting the estimated value of uncollectible accounts to a contra account.

b- allowance method

v: The difference between the balance of Accounts Receivable and its contra account, Allowance for Uncollectible Accounts.

d- book value of accounts receivable

v: The difference between an asset’s account balance and its related contra account.

c- book value

v: The amount of accounts receivable a business expects to collect.

k- net realizable value

v: A method used to estimate uncollectible accounts receivable that assumes a percent of credit sales will become uncollectible.

p- percent of sales method

v: A method that uses an analysis of accounts receivable to estimate the amount that will be uncollectible.

o- percent of accounts receivable method

v: Analyzing accounts receivable according to when they are due.

a- aging of accounts receivable

v: Canceling the balance of a customer account because the customer does not pay.

t- writing off an account

v: Recording uncollectible accounts expense only when an amount is actually known to be uncollectible.

direct write-off method

v: A written and signed promise to pay a sum of money at a specified time.

r- promissory note

v: A promissory note signed by a business and given to a creditor.

l- note payable

v: A promissory note that a business accepts from a customer.

m- note receivable

v: The person or business that signs a note and thus promises to make payment.

h- maker of a note

v: The person or business to whom the amount of a note is payable.

n- payee

v: The original amount of a note, sometimes referred to as the face amount.

q- principal

v: The percentage of the principal that is due for the use of the funds secured by a note.

g- interest rate

v: The date on which the principal of a note is due to be repaid.

i- maturity date

v: The length of time from the signing date of a note to the maturity date.

s- time of a note

v: The amount that is due on the maturity date of a note.

j- maturity value

v: The interest earned on money loaned.

f- interest income

v: A note that is not paid when due.

e- dishonored note

t or f: The expense of an uncollectible account should be recorded in the accounting period that the account becomes uncollectible.

false

t or f: The account Allowance for Uncollectible Accounts has a normal credit balance.

true

t or f: A business usually knows at the end of the fiscal year which customer accounts will become uncollectible.

false

t or f: The account Allowance for Uncollectible Accounts is reported on the income statement.

false

t or f: The book value of accounts receivable must be a reasonable and unbiased estimate of the money the business expects to collect in the future.

true

t or f: The percent of sales method of estimating uncollectible accounts expense assumes that a portion of every dollar of sales on account will become uncollectible.

true

t or f: The accounting concept Conservatism is applied when the process of making accounting estimates is free from bias.

false

t or f: The percent of each age group of an accounts receivable aging that is expected to become uncollectible is determined by the Securities and Exchange Commission.

false

t or f: The adjusting entry for uncollectible accounts does not affect the balance of the Accounts Receivable account.

true

t or f: A business having a $300.00 credit balance in Allowance for Uncollectible Accounts and estimating its uncollectible accounts to be $4,000.00 would record a $4,300.00 credit to Allowance for Uncollectible Accounts.

false

t or f: When an account is written off as uncollectible, the business sends the customer a credit memo.

false

t or f: When a customer account is written off under the allowance method, book value of Accounts Receivable decreases.

false

t or f: The direct write-off method of accounting for uncollectible accounts does not comply with GAAP.

true

t or f: When a previously written-off account is collected, Accounts Receivable is both debited and credited for the amount collected.

true

t or f: A note provides the business with legal evidence of the debt should it be necessary to go to court to collect.

true

t or f: Total assets are reduced when a business accepts a note receivable from a customer needing an extension of time to pay an account receivable.

false

t or f: Interest rates are stated as a percentage of the principal.

true

t or f: Interest income is classified as an Other Revenue account.

true

t or f: The method for calculating interest is the same for notes payable and notes receivable.

true

t or f: Interest income should not be recorded on a dishonored note receivable.

false