ACCT 2401 Exam 3 Chapters 7 & 8 Schisler Study Guide | Accounting Review & Practice
Questions
Why bank reconciliations are used? - ANS ✔✔Explains differences between bank and book
balance, and also helps find the true cash balance between the bank and book records
What causes differences between the bank balance and the cash account balance? - ANS
✔✔Timing differences between whenever the business records a transaction and whenever the
bank records it
Parts of the Bank Side - ANS ✔✔Deposit in transit, Outstanding Checks, Bank errors
Parts of the book side - ANS ✔✔Collection of receivables, interest revenue, non-sufficient funds
(NSF) checks, bank fees, electronic fund transfers (EFT), book errors
(t/f) Bank and Book errors can either be added or subtracted - ANS ✔✔true
Which reconciling items require journal entries to be posted in the accounting system? - ANS
✔✔items from the book side (Right)
What are the 2 methods for accounting for bad debts? - ANS ✔✔Direct write off and allowance
What is the journal entry when writing off uncollectibles when using the direct write-off
method? - ANS ✔✔Bad debit expense is debited and accounts receivable is credited
Why is the direct write off method generally not allowed by GAAP? - ANS ✔✔It violates the
matching principle, expenses should be recognized in the same period as the revenue they help
generate
, What is the method required by GAAP? - ANS ✔✔Allowance method
Why is the Allowance method required by GAAP? - ANS ✔✔Adheres to the matching principal
because it accounts for bad debts in the same period as sales revenues
What are the two methods companies can use when estimating bad debts in the allowance
method? - ANS ✔✔percent of sales and percent of receivables (aging)
percent of sales method - ANS ✔✔Estimates the amount of uncollectible as a percentage of net
credit sales
How to calculate the amount to use in the year-end adjusting entry when using the percent of
sales method - ANS ✔✔you must find the net credit sales (credit sale - sales returns &
allowances), estimated bad debt (net credit sales times the estimated uncollectible percentage),
then debit that amount as bad debt expense and credit it as ADA
How to calculate the amount to use in the year-end adjusting entry when using the aging
method - ANS ✔✔Look at the accounts receivable aging schedule and the information given in
the problem, then make a table with the columns: (account age, balance, estimated %
uncollectible, estimated amount uncollectible) and find the totals, then create a t chart with
whatever the allowance of doubtful acts normal balance is with this information: nothing
debited, first credit entry is the normal balance of the ada account the second credit entry is
blank, and the total is whatever you got in the total row for the estimated amount uncollectible
column), then you solve for the missing credit, whatever you get will be debit as bad debt
expense and credited as ADA in the final journal entry
Allowance for Doubtful Accounts - ANS ✔✔used to find a reduction of the total amount of
accounts receivable appearing on a company's balance sheet, is credited, and is listed as a
deduction immediately below the accounts receivable line item. This deduction is classified as a
contra asset account.
Net Realizable Value (NRV) - ANS ✔✔the cash amount that a company expects to receive.
Questions
Why bank reconciliations are used? - ANS ✔✔Explains differences between bank and book
balance, and also helps find the true cash balance between the bank and book records
What causes differences between the bank balance and the cash account balance? - ANS
✔✔Timing differences between whenever the business records a transaction and whenever the
bank records it
Parts of the Bank Side - ANS ✔✔Deposit in transit, Outstanding Checks, Bank errors
Parts of the book side - ANS ✔✔Collection of receivables, interest revenue, non-sufficient funds
(NSF) checks, bank fees, electronic fund transfers (EFT), book errors
(t/f) Bank and Book errors can either be added or subtracted - ANS ✔✔true
Which reconciling items require journal entries to be posted in the accounting system? - ANS
✔✔items from the book side (Right)
What are the 2 methods for accounting for bad debts? - ANS ✔✔Direct write off and allowance
What is the journal entry when writing off uncollectibles when using the direct write-off
method? - ANS ✔✔Bad debit expense is debited and accounts receivable is credited
Why is the direct write off method generally not allowed by GAAP? - ANS ✔✔It violates the
matching principle, expenses should be recognized in the same period as the revenue they help
generate
, What is the method required by GAAP? - ANS ✔✔Allowance method
Why is the Allowance method required by GAAP? - ANS ✔✔Adheres to the matching principal
because it accounts for bad debts in the same period as sales revenues
What are the two methods companies can use when estimating bad debts in the allowance
method? - ANS ✔✔percent of sales and percent of receivables (aging)
percent of sales method - ANS ✔✔Estimates the amount of uncollectible as a percentage of net
credit sales
How to calculate the amount to use in the year-end adjusting entry when using the percent of
sales method - ANS ✔✔you must find the net credit sales (credit sale - sales returns &
allowances), estimated bad debt (net credit sales times the estimated uncollectible percentage),
then debit that amount as bad debt expense and credit it as ADA
How to calculate the amount to use in the year-end adjusting entry when using the aging
method - ANS ✔✔Look at the accounts receivable aging schedule and the information given in
the problem, then make a table with the columns: (account age, balance, estimated %
uncollectible, estimated amount uncollectible) and find the totals, then create a t chart with
whatever the allowance of doubtful acts normal balance is with this information: nothing
debited, first credit entry is the normal balance of the ada account the second credit entry is
blank, and the total is whatever you got in the total row for the estimated amount uncollectible
column), then you solve for the missing credit, whatever you get will be debit as bad debt
expense and credited as ADA in the final journal entry
Allowance for Doubtful Accounts - ANS ✔✔used to find a reduction of the total amount of
accounts receivable appearing on a company's balance sheet, is credited, and is listed as a
deduction immediately below the accounts receivable line item. This deduction is classified as a
contra asset account.
Net Realizable Value (NRV) - ANS ✔✔the cash amount that a company expects to receive.
