Uncollectible Accounts_Formative:)

When does an account become uncollectible?

• when accounts receivable is converted into notes receivable

• when a discount is availed on notes receivable

• there is no general rule for when an account becomes uncollectible

• at the end of the fiscal year

The two methods of accounting for uncollectible receivables are the allowance method and

• equity method

• interest method

• cost method

• direct write-off method

The direct write-off method of accounting for uncollectible accounts

• emphasizes balance sheet relationships

• emphasizes cash realizable value

• emphasizes the matching of expenses with revenues

• is often used by small companies and companies with few receivables

Under the direct write-off method of accounting for uncollectible accounts, Bad Debt Expense is debited

• when a credit sale is past due

• at the end of each accounting period

• when an account is determined to be worthless

• whenever a pre-determined amount of credit sales have been made

If the direct write-off method of accounting for uncollectible receivables is used, what general ledger account is credited to write off a customer's account as uncollectible?

• Uncollectible Accounts Expense (it means the same thing as Bad Debt Expense - but it sounds fancier)

• Interest Expense

• Accounts Receivable

• Allowance for Doubtful Accounts

One of the weaknesses of the direct write-off method is that it

• understates accounts receivable on the balance sheet

• is too difficult to use for many companies

• is based on estimates

• violates the matching principle

What is the type of account and normal balance of Allowance for Doubtful Accounts?

• Asset, credit

• Contra asset, credit

• Asset, debt

• Contra asset, debit

A debit balance in the Allowance for Doubtful Accounts

• cannot occur if the percentage of receivables method of estimating bad debts is used

• indicates that actual bad debt write-offs have been less than what was estimated

• indicates that actual bad debt write-offs have exceeded the estimate for that period for bad debts

• is the normal balance for that account

You have just received notice that a customer of yours with an Accounts Receivable balance of $2,000 has gone bankrupt and will NOT make any future payments. Assuming you use the allowance method, the entry you make is to

• debit Bad Debt Expense and credit Accounts Receivable

• debit Allowance for Doubtful Accounts and credit Bad Debt Expense

• debit Allowance for Doubtful Accounts and credit Accounts Receivable

• debit Bad Debt Expense and credit Allowance for Doubtful Accounts

On the balance sheet, the net realizable balance represents

• the amount of accounts receivable written off under the direct write off method

• the amount of accounts receivables estimated to be collected

• the amount of accounts receivable estimated to be uncollected

• the total amount of bad debt expense