ACCT 201 Latest Exam 3 Test
Questions and Correct Updated
Answers 2025-2026 Edition.
Receivables - Answer refers to amounts due from individuals and companies, expected to be
collected in cash, one of the most liquid assets
Accounts receivable - Answer amounts customers owe on account; result from the sale of
goods and services; generally, expect to collect within 30-60 days
Notes receivable - Answer a written promise for amounts to be received; normally requires
the collection of interest and extends for 60-90 days or more
Other receivables - Answer include nontrade receivables (not resulting from sales
transactions) such as interest receivable, loans to company officers, advances to employees, and
income taxes refundable
Recognizing accounts receivable - Answer - a service organization records it when it performs
a service on account
- a merchandiser records it at the point of sale of merchandise (dr. A/R, cr. sales revenue)
Bad debt expense - Answer aka uncollectible accounts expense; what companies record credit
losses as
two methods used for uncollectible accounts:
- the direct write off method
- the allowance method
Direct write-off method - Answer when a company determines a particular account to be
uncollectible, it charges the loss to bad debt expanse (dr. bad debt cr. A/R). under this method
bad debt expense will show only actual losses
- NOT acceptable for financial reporting purposes
Allowance method - Answer involves estimating uncollectible amounts at the end of each
period
, - estimated uncollectibles adjusting entry: dr. bad debt expense, cr. allowance for doubtful
accounts (a contra account to A/R)
- to write off a specific account, actual uncollectibles: dr. allowance for doubtful accounts, cr.
A/R
- GAAP requires this method when bad debts are material in amount
Cash (net) realizable value - Answer the net amount the company expects to receive in cash,
excludes amounts that the company estimates it will not collect
Recording estimated uncollectibles - Answer for amount estimated to be uncollectible: dr. bad
debt expense, cr. allowance for doubtful accounts
- bad debt expense recorded in income statement as operating expense
- deducts allowance account from A/R in current assets section of balance sheet
Recording the write-off of an uncollectible account - Answer dr. allowance for doubtful
accounts, cr. accounts receivable
- must be formally approved by authorized management
- a write off affects only balance sheet accounts
Recovery of an uncollectible account - Answer two entries:
1. reverses the entry made in writing off the account (dr. A/R, cr. allowance for doubtful
accounts)
2. journalizes the collection (dr. cash, cr. A/R)
- affects only balance sheet accounts
Percentage of sales method - Answer management estimates what percentage of credit sales
will be uncollectible based on past experience and anticipated credit policy, then applies it to
either total credit sales or net credit sales of the current year
- emphasizes the matching of expenses with revenues
Credit card sales - Answer involve three parties: the credit card issuer, the retailer, and the
customer
retailer records: dr. cash, dr. service charge expense, cr. sales revenue
Questions and Correct Updated
Answers 2025-2026 Edition.
Receivables - Answer refers to amounts due from individuals and companies, expected to be
collected in cash, one of the most liquid assets
Accounts receivable - Answer amounts customers owe on account; result from the sale of
goods and services; generally, expect to collect within 30-60 days
Notes receivable - Answer a written promise for amounts to be received; normally requires
the collection of interest and extends for 60-90 days or more
Other receivables - Answer include nontrade receivables (not resulting from sales
transactions) such as interest receivable, loans to company officers, advances to employees, and
income taxes refundable
Recognizing accounts receivable - Answer - a service organization records it when it performs
a service on account
- a merchandiser records it at the point of sale of merchandise (dr. A/R, cr. sales revenue)
Bad debt expense - Answer aka uncollectible accounts expense; what companies record credit
losses as
two methods used for uncollectible accounts:
- the direct write off method
- the allowance method
Direct write-off method - Answer when a company determines a particular account to be
uncollectible, it charges the loss to bad debt expanse (dr. bad debt cr. A/R). under this method
bad debt expense will show only actual losses
- NOT acceptable for financial reporting purposes
Allowance method - Answer involves estimating uncollectible amounts at the end of each
period
, - estimated uncollectibles adjusting entry: dr. bad debt expense, cr. allowance for doubtful
accounts (a contra account to A/R)
- to write off a specific account, actual uncollectibles: dr. allowance for doubtful accounts, cr.
A/R
- GAAP requires this method when bad debts are material in amount
Cash (net) realizable value - Answer the net amount the company expects to receive in cash,
excludes amounts that the company estimates it will not collect
Recording estimated uncollectibles - Answer for amount estimated to be uncollectible: dr. bad
debt expense, cr. allowance for doubtful accounts
- bad debt expense recorded in income statement as operating expense
- deducts allowance account from A/R in current assets section of balance sheet
Recording the write-off of an uncollectible account - Answer dr. allowance for doubtful
accounts, cr. accounts receivable
- must be formally approved by authorized management
- a write off affects only balance sheet accounts
Recovery of an uncollectible account - Answer two entries:
1. reverses the entry made in writing off the account (dr. A/R, cr. allowance for doubtful
accounts)
2. journalizes the collection (dr. cash, cr. A/R)
- affects only balance sheet accounts
Percentage of sales method - Answer management estimates what percentage of credit sales
will be uncollectible based on past experience and anticipated credit policy, then applies it to
either total credit sales or net credit sales of the current year
- emphasizes the matching of expenses with revenues
Credit card sales - Answer involve three parties: the credit card issuer, the retailer, and the
customer
retailer records: dr. cash, dr. service charge expense, cr. sales revenue
