ACCT 2101 - Chapter 15 Test
Questions and Answers Graded A+
2025 Update.
Methods for writing off accounts that are deemed uncollectible - Answer - allowance method
- direct charge off method
allowance method - Answer charging uncollectible accounts expense in the period when the
sales are recorded, as an adjusting entry at the end of the period
- required by GAAP
- an estimate is debited to Uncollectible Accounts Expense and credited to Allowance for
Doubtful Accounts
- matches uncollectible accounts expense to sales
valuation account (Allowance for Doubtful Accounts) - Answer a contra asset account which
reduces the amount of accounts receivable on the balance sheet to its "net realizable value"
(NRV).
direct charge off method - Answer records uncollectible account losses as they occur
- used for tax purposes
- doesn't always match revenue and expense, violating the matching rule
- can overstate accounts receivable
- debit Uncollectible Accounts Expense and credit Accounts Receivable/
Allowance for Doubtful Accounts - Answer (allowance method)
- contra asset account
- reported as a deduction from the AR section of the balance sheet
- contains the estimate of AR deemed uncollectible
Uncollectible Accounts Expense - Answer reported on the income statement as an expense
account
, income statement approach - Answer percentage of net credit sales
- existing balance is ignored
balance sheet approaches - Answer total accounts receivable on Dec 31
aging of accounts receivable on Dec 31
percentage of net credit sales - Answer - multiply net credit sales by a percentage
- percentage is based on the company's previous experience
- new businesses base their percentage on industry average
calculation for percentage of net sales - Answer (average Uncollectible Accounts) / (average
Accounts Receivable) = % estimated to be uncollectible
Allowance for Doubtful Accounts is adjusted so that - Answer its ending balance is equal to the
estimate (desired balance)
- subtract a credit balance from the desired balance to get the adjustment
- add a debit balance to the desired balance to get the adjustment
aging the accounts receivable - Answer - classify receivables according to how long they have
been outstanding
- current, 1-30 days late, 31-60 days late, over 60 late; a percentage is estimated to be
uncollectible for each category
- the longer an account is past due, the more likely it is uncollectible
- proves AR subsidiary ledger balances with AR control account
write off customer account in allowance method - Answer debit Allowance for Doubtful
Accounts
credit Accounts Receivable / customer acct
What effect does the write off have on the financial statements? (allowance method) - Answer
The write off has no effect on the financial statements because the expense was recorded
previously.
- no effect on net income or income statement
Questions and Answers Graded A+
2025 Update.
Methods for writing off accounts that are deemed uncollectible - Answer - allowance method
- direct charge off method
allowance method - Answer charging uncollectible accounts expense in the period when the
sales are recorded, as an adjusting entry at the end of the period
- required by GAAP
- an estimate is debited to Uncollectible Accounts Expense and credited to Allowance for
Doubtful Accounts
- matches uncollectible accounts expense to sales
valuation account (Allowance for Doubtful Accounts) - Answer a contra asset account which
reduces the amount of accounts receivable on the balance sheet to its "net realizable value"
(NRV).
direct charge off method - Answer records uncollectible account losses as they occur
- used for tax purposes
- doesn't always match revenue and expense, violating the matching rule
- can overstate accounts receivable
- debit Uncollectible Accounts Expense and credit Accounts Receivable/
Allowance for Doubtful Accounts - Answer (allowance method)
- contra asset account
- reported as a deduction from the AR section of the balance sheet
- contains the estimate of AR deemed uncollectible
Uncollectible Accounts Expense - Answer reported on the income statement as an expense
account
, income statement approach - Answer percentage of net credit sales
- existing balance is ignored
balance sheet approaches - Answer total accounts receivable on Dec 31
aging of accounts receivable on Dec 31
percentage of net credit sales - Answer - multiply net credit sales by a percentage
- percentage is based on the company's previous experience
- new businesses base their percentage on industry average
calculation for percentage of net sales - Answer (average Uncollectible Accounts) / (average
Accounts Receivable) = % estimated to be uncollectible
Allowance for Doubtful Accounts is adjusted so that - Answer its ending balance is equal to the
estimate (desired balance)
- subtract a credit balance from the desired balance to get the adjustment
- add a debit balance to the desired balance to get the adjustment
aging the accounts receivable - Answer - classify receivables according to how long they have
been outstanding
- current, 1-30 days late, 31-60 days late, over 60 late; a percentage is estimated to be
uncollectible for each category
- the longer an account is past due, the more likely it is uncollectible
- proves AR subsidiary ledger balances with AR control account
write off customer account in allowance method - Answer debit Allowance for Doubtful
Accounts
credit Accounts Receivable / customer acct
What effect does the write off have on the financial statements? (allowance method) - Answer
The write off has no effect on the financial statements because the expense was recorded
previously.
- no effect on net income or income statement
