ACCT 2100 Chap 5 practice Quiz

ACCT 2100 Chap 5 - ACCT 2100 Chap 5 practice Quiz 1 Which of the following statements is true A Companies generally do not expect to collect the

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ACCT 2100 Chap 5 practice Quiz  CORRECT Which of the following statements is true? A) Companies generally do not expect to collect the full face value of their accounts receivable. B) Companies always collect the full face amount of their receivables C) Companies are not allowed to make any provision against potential losses due to the inability to collect what is due to them totally Feedback: When companies allow customers to purchase items now and pay for them later, we create an asset called an account receivable. In a perfect world, companies would receive prompt payment of the entire amount owed to them. However, the world is not perfect. This means that companies will, in all likelihood, not collect 100% of the amount owed to them. They, however, have no way to know, for sure, how much they will not collect. The amount they estimate will be collected is called the Net Realizable Value. The difference between the Total amount of the receivable and the net realizable value is called the Allowance for Doubtful accounts. LO: LO 1 CORRECT Suppose a company estimates that its' bad debts related to credit sales for the year 2009 will be $22,000. The company utilizes the allowance method. How will the necessary adjusting entry affect Liabilities and Expenses, respectively? A) Increase; Increase B) Increase; No effect C) No effect; Increase D) Decrease; Decrease Feedback: In creating an Allowance for Doubtful Accounts, a company will estimate the amount that it will lose. The entry to create the Allowance will reduce the carrying value of receivables, an asset. At the same time, the company will recognize the loss of the receivables, even though no loss has taken place. This will increase expenses, and, ultimately, equity. No effect is felt on Liabilities. LO: LO 1
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This note was uploaded on 02/05/2012 for the course ACCT 2100 taught by Professor Smith during the Spring '08 term at Kennesaw.

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ACCT 2100 Chap 5 - ACCT 2100 Chap 5 practice Quiz 1 Which of the following statements is true A Companies generally do not expect to collect the

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