Accounts Receivable and Bad Debts Expense

(Practice Quiz)

1. When a sale is made with the credit terms of 2/10, net 30, the "10" refers to the __________
period.

2. On June 1, $800 of goods are sold with credit terms of 1/10, n/30. How much should the seller
expect to receive if the buyer pays on June 8?

$720 $784 $792 $800

3. On June 1, $800 of goods are sold with credit terms of 1/10, n/30. On June 3 the customer
returned $100 of the goods. How much should the seller expect to receive if the buyer pays on
June 8?

$692 $693 $700 $792

4. With credit terms of 2/10, n/30, the annual interest rate for paying in 10 days instead of 30 days is
closest to

2% 24% 30% 36%

5. When the terms of a sale are FOB __________, ownership of goods will transfer to the customer
at the customer's dock.

6. The seller is responsible for the costs of shipping its goods to the buyer when the terms of the sale
are FOB __________.

Destination Shipping Point

7. The buyer is responsible for the costs of shipping when goods are sold with the terms FOB
__________.

Destination Shipping Point

8. When the Allowance for Doubtful Accounts appears on a company's financial statements, its
balance will be a __________ balance.

Debit Credit

9. On which financial statement would you expect to find Allowance for Doubtful Accounts?

Balance Sheet Income Statement

 10. Which method of reporting losses on accounts receivable is required in the U.S. for income tax
purposes?

Allowance Direct Write-off

11. Which method of reporting losses on accounts receivable is to be used for financial reporting?

Allowance Direct Write-off

12. The seller of goods that is offering credit terms of net 30 days will likely be one of its customer's
__________ creditors until it receives payment.

Secured Unsecured

13. After several years of operations, a company's Bad Debts Expense for a given year is likely to be
the same as its balance in Allowance for Doubtful Accounts.

True False

14. A company estimates that $20,000 of its $500,000 of accounts receivable will be uncollectible. Its
Allowance for Doubtful Accounts presently has a credit balance of $8,000. The adjusting entry
will include a __________ to the Allowance for Doubtful Accounts.

Debit Of $12,000 Credit Of $12,000

Debit Of $28,000 Credit Of $28,000

15. A company estimates that $20,000 of its $500,000 of accounts receivable will be uncollectible. Its
Allowance for Doubtful Accounts presently has a credit balance of $18,000. The adjusting entry
will include a __________ to Bad Debts Expense.

Debit Of $2,000 Credit Of $2,000

Debit Of $38,000 Credit Of $38,000

16. A company estimates that $20,000 of its $500,000 of accounts receivable will be uncollectible. Its
Allowance for Doubtful Accounts presently has a debit balance of $3,000. The adjusting entry
will include a __________ to Allowance for Doubtful Accounts.

Debit Of $3,000 Credit Of $3,000 Debit Of $17,000

Credit Of $17,000 Debit Of $23,000 Credit Of $23,000

Use the following information for questions 17-21:

A company is expecting thousands of credit sales transactions each week with terms of net 30 days. The
company uses the allowance method and it prepares weekly financial statements. It believes that 0.001 of
its credit sales will be uncollectible. The company's credit sales for its first week of operations are
$500,000. The credit sales for its second week are $600,000.
 17. The company's bad debts expense for its first week of operations will be $ __________.

18. The balance in Allowance for Doubtful Accounts at the end of the first week will likely be $
__________.

19. The company's bad debts expense for its second week of operations will be $ __________.

20. The amount of accounts receivable that you expect will be written off by the end of the
company's second week of operations is $ __________.

21. The balance in Allowance for Doubtful Accounts at the end of the second week of operations will
likely be $__________.

Use the following information for questions 22-25:

A company's Allowance for Doubtful Accounts has a credit balance of $25,000. It learns that one of its
accounts receivable amounting to $1,800 is worthless and needs to be written off.

22. Which account should be debited for $1,800 when writing off the account?

Allowance For Doubtful Accounts Accounts Receivable

Bad Debts Expense

23. Which account should be credited for $1,800 when writing off the account?

Allowance For Doubtful Accounts Accounts Receivable

Bad Debts Expense

24. Assuming that after the account is written off, the supplier receives full payment from the
customer. Which account will not be involved in the accounting entries made at the time when
the payment is received?

Allowance For Doubtful Accounts Accounts Receivable

Bad Debts Expense

25. Under the direct write off method, which account is debited when a company writes off one of its
accounts receivable?

Allowance For Doubtful Accounts Accounts Receivable

Bad Debts Expense

26. Sorting a company's accounts receivable into classifications such as current, 1-30 days past due,
and 31-60 days past due is known as the __________ of accounts receivables.

27. The receivable turnover ratio is computed by dividing the net credit __________ for the year by
the average amount of accounts receivable during the year.
28. The days' sales in accounts receivable is calculated by dividing __________ days by the
receivables turnover ratio during the year.

29. A company's accounts receivable minus its allowance for doubtful accounts equals the net
__________ value of the accounts receivable.

30. In some industries, companies often sell their accounts receivable to a firm known as a
__________.
Answers
1. Discount
2. $792
3. $693
4. 36%
5. Destination
6. Destination
7. Shipping Point
8. Credit
9. Balance Sheet
10. Direct Write-off
11. Allowance
12. Unsecured
13. False
14. Credit of $12,000
15. Debit of $2,000
16. Credit of $23,000
17. $500
18. $500
19. $600
20. $0
21. $1,100
22. Allowance For Doubtful Accounts
23. Accounts Receivable
24. Bad Debts Expense
25. Bad Debts Expense
26. Aging
27. Sales
28. 360 or 365
29. Realizable
30. Factor