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Chapter 20 Study Guide


True/False
Indicate whether the sentence or statement is true or false.
 

 1. 
A business generally sells on account to encourage sales.
 

 2. 
An uncollectible account decreases revenue.
 

 3. 
The loss from an uncollectible amount is a regular expense of doing business.
 

 4. 
The balance of Accounts Receivable, a controlling account, must equal the sum of the customer accounts in the subsidiary ledger.
 

 5. 
To record estimated uncollectible accounts, a closing entry is made.
 

 6. 
An account that reduces a related account on a financial statement is known as a related account.
 

 7. 
A contra asset account has a normal credit balance because it increases the balance of an asset account.
 

 8. 
Crediting the estimated value of uncollectible accounts to a contra account is the allowance method of recording losses from uncollectible accounts.
 

 9. 
Many businesses use a percentage of total sales on account to estimate the uncollectible accounts expense.
 

 10. 
Each sale on account represents a risk of loss from uncollectible accounts.
 

 11. 
The percentage used to estimate uncollectible accounts expense is specified by the Internal Revenue Service.
 

 12. 
The account Allowance for Uncollectible Accounts is increased by a debit.
 

 13. 
At the end of the fiscal period, an adjustment for uncollectible accounts expense is planned in the subsidiary ledger.
 

 14. 
An Allowance for Uncollectible Accounts balance in the Trial Balance Credit column of the work sheet means previous fiscal period estimates have not yet been identified as uncollectible.
 

 15. 
When the allowance account has a previous credit balance, this previous balance is subtracted from the amount of the adjustment for uncollectible accounts expense.
 

 16. 
The balance of the account Allowance for Uncollectible Accounts is extended to the Income Statement Credit column of the work sheet.
 

 17. 
When a journal entry is made to cancel the customer account in the general ledger account Accounts Receivable, the entry also cancels the customer account in the accounts receivable ledger.
 

 18. 
The book value of accounts receivable is decreased after writing off an uncollectible account.
 

 19. 
When an account is collected that was previously written off, the account receivable must be reopened.
 

 20. 
Entries resulting from cash received for a previously written-off account are recorded in a cash receipts journal's special amount columns.
 

 21. 
Accounts receivable that cannot be collected are called uncollectible accounts.
 

 22. 
The Realization of Revenue accounting concept explains why failing to collect an account at a later date than the original sale cancels the sale and reduces revenue.
 

 23. 
A business usually knows at the time sales are made which customer accounts will become uncollectible.
 

 24. 
Allowance for Uncollectible Accounts is a contra account to its related asset account, Accounts Receivable.
 

 25. 
The difference between an asset's account balance and its related contra account balance is called its book value.
 

 26. 
The difference between the balance of Accounts Receivable and its contra account, Allowance for Uncollectible Accounts, is called book value.
 

 27. 
Estimating the percentage of uncollectible accounts expense in the same period as the sales revenue is an application of the Realization of Revenue accounting concept.
 

 28. 
When an adjusting entry for uncollectible accounts expense is recorded, Allowance for Uncollectible Accounts is credited.
 

 29. 
Using the percentage of total sales on account to estimate uncollectible accounts expense assumes that a portion of every sale on account dollar will become uncollectible.
 

 30. 
Canceling the balance of a customer account because the customer does not pay is called writing off an account.
 

 31. 
Allowance for Uncollectible Accounts is debited to write off a customer account.
 

 32. 
Accounts Receivable is debited to write off a customer account.
 

 33. 
Accounts Receivable is credited to write off a customer account.
 

 34. 
When an account is written off, the account balance is transferred to Allowance for Uncollectible Accounts.
 

 35. 
When a previously written-off account is collected, Accounts Receivable is debited and credited for the amount collected.
 

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
 

 36. 
Accounts receivable that cannot be collected are ____.
a.
uncollectible accounts
c.
both a and b
b.
bad debts
d.
none of the above
 

 37. 
The loss from an uncollectible account is ____.
a.
a liability
c.
an asset
b.
a regular expense of doing business
d.
a reduction in revenue
 

 38. 
An account that reduces a related account is known as ____.
a.
a contra account
c.
an expense
b.
an uncollectible account
d.
an allowance
 

 39. 
Allowance for Uncollectible Accounts is a contra account to ____.
a.
Accounts Payable
c.
Uncollectible Accounts Expense
b.
Sales
d.
Accounts Receivable
 

 40. 
The balance of accounts receivable less the allowance for uncollectible accounts is the formula for calculating ____.
a.
uncollectible accounts expense
b.
book value of accounts receivable
c.
the contra account balance to accounts receivable
d.
total collections of previously written-off accounts
 

 41. 
When the percentage of total sales on account method is used, the estimated uncollectible accounts expense is calculated by ____.
a.
multiplying total sales on account times the percentage
b.
dividing total sales on account by the percentage
c.
multiplying total sales times the percentage
d.
dividing total sales by the percentage
 

 42. 
Estimating uncollectible accounts expense at the end of a fiscal period is an application of the accounting concept ____.
a.
Business Entity
c.
Realization of Revenue
b.
Objective Evidence
d.
Matching Expenses with Revenue
 

 43. 
An Allowance for Uncollectible Accounts balance in the Trial Balance Credit column of a work sheet means ____.
a.
there are no uncollectible accounts
b.
the estimate has not yet been recorded
c.
previous fiscal period estimates have not yet been identified as uncollectible
d.
equity has been maintained
 

 44. 
When the allowance account in the Trial Balance column of a work sheet has a credit balance, the amount of the adjustment is ____.
a.
deducted from the trial balance amount
c.
multiplied by two
b.
not recorded
d.
added to the Trial Balance amount
 

 45. 
Information used to journalize an uncollectible expense adjusting entry is obtained from a work sheet's ____.
a.
Balance Sheet columns
c.
Adjustments columns
b.
Income Statement columns
d.
Trial Balance column
 

 46. 
The entry to journalize the uncollectible accounts expense adjusting entry is debit Uncollectible Accounts Expense and credit ____.
a.
Accounts Receivable
c.
Allowance for Uncollectible Accounts
b.
Cash
d.
none of the above
 

 47. 
When an account is determined to be uncollectible, ____.
a.
a journal entry is made to cancel the uncollectible account
b.
the account is removed from the general ledger
c.
the amount is deducted from sales
d.
the customer subsidiary ledger account is removed
 

 48. 
Canceling the balance of a customer account because the customer does not pay is ____.
a.
an adjusting entry
c.
a closing entry
b.
writing off an account
d.
none of the above
 

 49. 
Writing off an account ____.
a.
decreases the balance of Accounts Receivable
b.
decreases the balance of Uncollectible Accounts Expense
c.
increases the balance of Allowance for Uncollectible Accounts
d.
increases the balance of Cash
 

 50. 
When uncollectible accounts are estimated, writing off an account ____.
a.
increases revenue
b.
increases expenses
c.
does not change the book value of accounts receivable
d.
may increase expenses or decrease revenue
 

 51. 
The entry to write off an account receivable is recorded in the ____.
a.
sales journal
c.
cash payments journal
b.
cash receipts journal
d.
general journal
 

 52. 
The journal entry to write off an account receivable account is debit Allowance for Uncollectible Accounts and credit ____.
a.
Cash.
c.
Uncollectible Accounts Expense
b.
Accounts Receivable
d.
none of the above
 

 53. 
The journal entry to reopen an account that has been written off is debit Accounts Receivable and credit ____.
a.
Cash
c.
Uncollectible Accounts Expense
b.
Allowance for Uncollectible Accounts
d.
none of the above
 

 54. 
The journal entry to record receipt of cash for an account previously written off is debit Cash and credit ____.
a.
Accounts Receivable
c.
Uncollectible Accounts Expense
b.
Allowance for Uncollectible Accounts
d.
none of the above