Which accounting principle primarily

AE 111 Midterm Formative Assessment supports the use of allowance for

Assessment Proper doubtful accounts? *
36 of 50 points
A method of estimating uncollectible Continuity principle
accounts that emphasizes asset
Full disclosure principle
valuation rather than income
measurement is the allowance method
Matching principle
based on *
Conservativism
Aging of accounts receivable
The estimate of uncollectible accounts
Direct write-off
receivable based on a percentage of
sales *
Gross sales

Credit sales less returns and Emphasizes measurement of the net

allowances realizable value of accounts
receivable

The advantage of relating the bad debt

Emphasizes measurement of bad
experience to accounts receivable is debts expense
that this approach *
Emphasizes measurement of total
Gives a reasonable accurate assets
measurement of accounts receivable
in the statement of financial position Is only acceptable for tax purposes

Relates bad debt expense to the When an aging approach is used for
period of sale
estimating uncollectible accounts *

Is the only generally accepted method

for measuring accounts receivable Bad debt expense is measured
indirectly and the allowance for
uncollectible accounts is measured
Makes estimates of uncollectible
directly
accounts unnecessary

Bad debt expense is measured

 
indirectly and the allowance for
uncollectible accounts is measured
indirectly
 Bad debt expense is measured Affects neither net income nor
directly and the allowance for accounts receivable
uncollectible accounts is measured
directly. Decreases both net income and
working capital
Bad debts is measured directly and
the allowance for uncollectible Decreases both net income and
accounts is measured indirectly accounts receivable

All of the following are problems Correct answer

associated with the measurement of Affects neither net income nor
accounts receivable, except * working capital

Uncollectible accounts Credit balances in accounts receivable

are classified as *
Returns
Current liabilities
Cash discounts under the net method
Part of accounts payable
Allowance granted
Long-term liabilities
In recording cash discounts related to
accounts receivable, which is more Deduction from accounts receivable
theoretically correct? *
Trade receivables are classified as
Net method current assets if they are reasonably
expected to be collected *
Gross method
Within one year
Allowance method
Within the normal operating cycle
All three methods are theoretically
correct
Within one year or within the
operating cycle, whichever is shorter
Under the allowance method, the
journal entry to record the write-off of a Which one year or within the
specific uncollectible account * operating cycle, whichever is longer

Affects neither net income nor Which of the following does not change
working capital the balance in accounts receivable? *

Return of credit sales

 Collection from customers Decrease the allowance for doubtful
accounts
Bad debt expense adjusting entry
Increase net income
Write off
Have no effect on the allowance for
doubtful accounts
When the allowance method is used,
the entry to record the write-off of a Have no effect on net income
specific account would *
Correct answer
Decrease both accounts receivable Have no effect on net income
and the allowance

Decrease the accounts receivable and Collection of accounts receivable

increase allowance previously written off results in an
increase in cash and an increase in *
Increase both accounts receivable and
the allowance
Accounts receivable

Increase accounts receivable and

Allowance for doubtful accounts
decrease the allowance

Bad debt expense

Why is the allowance method preferred
over the direct write-off method of Retained earnings
accounting for bad debts? *
Correct answer
Allowance method is used for tax Allowance for doubtful accounts
purposes

Which method of recording bad debt

Estimates are used
loss is consistent with accrual
Determining worthless accounts accounting? *
under direct write-off method is
difficult to do Allowance method

Improved matching of bad debt Direct-charge off method

expense with revenue
Percent of sales method
Under the allowance method, the
entries at the time of collection of an Percent of accounts receivable
account previously written off would * method
When an accounts receivable aging Correct answer
schedule is prepared, a series of A previously defaulted customer pays
computations is made to determine the the balance
estimated uncollectible accounts. The
resulting amount from this aging Which of the following is not
schedule * acceptable in estimating uncollectible
accounts receivable? *
When added to the total accounts
written off during the year is the The estimate of uncollectible
desired credit balance of the accounts is based on a percentage of
allowance for doubtful accounts at sales for the period.
year-end
The estimate of uncollectible
Is the amount of doubtful accounts accounts is based on a percentage of
expense for the year the accounts receivable at the end of a
period
Is the amount that should be added to
the beginning allowance for doubtful The estimate of uncollectible
accounts to get the doubtful accounts accounts is based on an aging
expense for the year schedule

Is the amount of desired credit No estimate of uncollectible accounts

balance of the allowance for doubtful is made but accounts are written off
accounts to be reported at year-end when it is determined that the
accounts cannot be collected
Correct answer
Correct answer
Is the amount of desired credit
balance of the allowance for doubtful No estimate of uncollectible accounts
accounts to be reported at year-end is made but accounts are written off
when it is determined that the
accounts cannot be collected
The entry debiting accounts receivable
and crediting allowance for doubtful
Nontrade receivables are classified as
accounts would be made when *
current assets only if reasonably
expected in cash *
A customer pays an account balance

A customer defaults on the account Within one year or within the

operating cycle, whichever is shorter
A previously defaulted customer pays
the balance Within one year or within the
operating cycle, whichever is longer
Estimated uncollectible accounts are
too low Within the normal operating cycle
 Within one year, the length of the Which concept relates to the allowance
operating cycle notwithstanding
method in accounting for uncollectible
accounts receivable? *
An entity uses the allowance method to
recognize doubtful accounts expense.
Bad debt expense is an estimate based
What is the effect of a collection of an on historical and prospective
account previously written off? * information

No effect on both allowance for Bad debt expense is the actual

doubtful accounts and doubtful amount determined to be
accounts expense uncollectible

No effect on the allowance for Bad debt expense is an estimate based

doubtful accounts and decrease in on aging of accounts receivable
doubtful accounts expense
Bad debt expense is management
Increase in allowance for doubtful determination of which accounts are
accounts and no effect on doubtful considered doubtful
accounts expense
Which is an accurate method of
Increase in allowance for doubtful determining the amount of the
accounts and decrease in doubtful
accounts expense adjustment to bad debt expense? *

Correct answer A percentage of sales adjusted for the

balance in the allowance
Increase in allowance for doubtful
accounts and no effect on doubtful
accounts expense A percentage of sales not adjusted for
the balance in the allowance

A method of estimating bad debts that A percentage of accounts receivable

focuses on the income statement rather not adjusted for the balance in the
than the statement of financial position allowance
is the allowance method based on *
An amount derived from aging
accounts receivable and not adjusted
Direct write-off for the balance in the allowance

Aging the trade accounts receivable

Which is recorded by a credit to
accounts receivable? *
Credit sales

Trade accounts receivable Sale of inventory on account

Estimating the allowance for doubtful
accounts

Estimating annual sales returns

Write-off of accounts receivable