Question Details

CHAPTER 9 ACCOUNTING FOR RECEIVABLES PART 2


TRUE-FALSE STATEMENTS
1. Trade receivables occur when two companies trade or exchange notes receivables.
2. Other receivables include nontrade receivables such as loans to company officers.
3. Both accounts receivable and notes receivable represent claims that are expected to be
collected in cash.
4. Receivables are valued and reported in the balance sheet at their gross amount less any
sales returns and allowances and less any cash discounts.
5. The three primary accounting problems with accounts receivable are: (1) recognizing, (2)
depreciating, and (3) disposing.
6. Accounts receivable are the result of cash and credit sales.
7. If a retailer assesses a finance charge on the amount owed by a customer, Accounts
Receivable is debited for the amount of the interest.
8. If a company uses the allowance method to account for uncollectible accounts, the entry
to write off an uncollectible account only involves balance sheet accounts.
9. The percentage of receivables basis of estimating expected uncollectible accounts
emphasizes income statement relationships.
Accounting for Receivables
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10. Under the direct write-off method, no attempt is made to match bad debts expense to
sales revenues in the same accounting period.
11. Allowance for Doubtful Accounts is debited under the direct write-off method when an
account is determined to be uncollectible.
12. Allowance for Doubtful Accounts is a contra asset account.
13. Cash realizable value is determined by subtracting Allowance for Doubtful Accounts from
Net Sales.
14. Generally accepted accounting principles require that the direct write-off method be used
for financial reporting purposes if it is also used for tax purposes.
15. Under the allowance method, Bad Debts Expense is debited when an account is deemed
uncollectible and must be written off.
16. Under the allowance method, the cash realizable value of receivables is the same both
before and after an account has been written off.
17. The percentage of sales basis for estimating uncollectible accounts always results in more
Bad Debts Expense being recognized than the percentage of receivables basis.
18. An aging schedule is prepared only for old accounts receivables that have been past due
for more than one year.
19. An aging of accounts receivable schedule is based on the premise that the longer the
period an account remains unpaid, the greater the probability that it will eventually be
collected.
20. Sales resulting from the use of VISA and MasterCard are considered credit sales by the
retailer.