Test VI – Fill in the Blank AR

- All items are already answered -

1. When goods are sold on credit, accounts receivable account is debited and sales account is
credited.

2. Cash discount is allowed to credit customers to encourage them to make prompt payments.

3. Cash discount is also known as sales discount.

4. The payment terms 2/15, n/30 means that a 2% discount would be allowed if the payment is
made within 15 days. Otherwise, full amount is payable within 30 days.

5. When cash is collected from credit customers, cash account is debited and accounts
receivable account is credited.

6. The sales discount account is a contra revenue account.

7. The sales discount is deducted from gross sales to arrive at net sales.

8. Sales discount forfeited is reported as other revenue on the income statement.

9. Accounts receivable that cannot be collected because of bankruptcy or another reason are
called uncollectible accounts.

10. Face value of accounts receivable - Allowance for doubtful accounts = Net realizable value of
accounts receivable.

11. When adjusting entry to recognize uncollectible accounts expense is made under allowance
method, uncollectible accounts expense account is debited and allowance for doubtful accounts
account is credited.

12. The uncollectible accounts expense account is closed to income summary account.

13. The allowance for doubtful accounts account is a contra asset account that reduces the gross
amount of accounts receivable to their net realizable value.

14. When a receivable is written off under allowance method, allowance for doubtful accounts
account is debited and accounts receivable account is credited.

15. The Naxum Company uses aging method to estimate the allowance for doubtful accounts. On
December 31, 2018, the existing balance in allowance for doubtful accounts account is $20,000
and the required balance in this account is $22,000. The adjusting entry on December 31, 2018
would be made in the amount of $2,000.

16. The Noran Company estimates that 2% of its total credit sales will prove to be uncollectible.
The existing balance in allowance for doubtful accounts account is $4,000. If the credit sales for the
year 2018 are $50,000, the adjusting entry on December 31, 2018 would be made for the amount of
$1,000.
17. A promissory note is written by a debtor in favor of a creditor.

18. Factoring means selling accounts receivable to a financial instituion at a discount.

19. The institution to whom receivables are sold is known as factor.

20. When accounts receivable are factored without recourse, the factor/purchasing institution
bears the loss resulting from bad debts.

21. In a factoring with recourse , the seller guarantees the collection of accounts receivable.

22. When accounts receivable are converted into notes receivable, notes receivable account is
debited and accounts receivable account is credited