#1
Which of the following best describes accounts receivable?
Money owed by customers for goods or services sold on credit
ExplanationAccounts receivable represent funds owed by customers for purchases made on credit.
#2
What is the primary goal of managing accounts receivable?
To minimize the time it takes to collect outstanding debts
ExplanationManaging accounts receivable aims to expedite the collection process for outstanding debts.
#3
What is the allowance for doubtful accounts?
A reserve for uncollectible debts
ExplanationThe allowance for doubtful accounts is a provision set aside to cover potential losses from uncollectible debts.
#4
Which method of estimating uncollectible accounts uses a percentage of total credit sales?
Percentage of sales method
ExplanationThe percentage of sales method estimates uncollectible accounts by applying a percentage to total credit sales.
#5
What is the aging of accounts receivable method used for?
To categorize outstanding receivables by their age
ExplanationThe aging of accounts receivable method categorizes outstanding receivables based on the length of time they have been outstanding.
#6
Which financial ratio measures a company's ability to collect its accounts receivable?
Accounts receivable turnover ratio
ExplanationThe accounts receivable turnover ratio measures how efficiently a company collects its accounts receivable during a specific period.
#7
What is the journal entry to write off a specific uncollectible account using the allowance method?
Debit Allowance for Doubtful Accounts, Credit Accounts Receivable
ExplanationTo write off a specific uncollectible account under the allowance method, debit the Allowance for Doubtful Accounts and credit Accounts Receivable.
#8
Under the direct write-off method, when is a bad debt expense recognized?
When an account is determined to be uncollectible
ExplanationUnder the direct write-off method, bad debt expense is recognized when an account is deemed uncollectible.
#9
Which financial statement would show the amount of uncollectible debts written off during a period?
Income statement
ExplanationThe income statement shows the amount of uncollectible debts written off during a specific period, reflecting the impact of bad debt expense on profitability.
#10
Which method of estimating uncollectible accounts is required for financial reporting purposes under Generally Accepted Accounting Principles (GAAP)?
Aging of accounts receivable method
ExplanationThe aging of accounts receivable method is required for financial reporting purposes under Generally Accepted Accounting Principles (GAAP) to estimate uncollectible accounts and report them accurately.