Acnt 1471

1. Explain the matching principle in relationship to recording Bad Debts Expense. The Accrual system of accounting matches earned revenue with expenses that have been incurred in producing revenue during an accounting period. One expense incurred as a result of sales on credit or on account is a bad debts expense.

2. What is the purpose of the Allowance for Doubtful Accounts? This account is a contra-asset account that accumulates the expected amount of bad debts as of a given date. This account is also a permanent account that is not closed to Income Summary at the end of the year.

3. What is net realizable value? Net realizable value is the amount of accounts receivable that is expected to be collected.

4. When an account receivable is written off, Bad Debts Expense must be debited. True or False? False. Bad Debts expense is no longer used to write off accounts receivable accounts. Allowance for doubtful accounts will be debited, and the accounts receivable will be credited.

5. Explain why the Allowance for Doubtful Accounts is a contra-asset account. Because it contradicts Accounts Receivable which is an asset. Allowance for Doubtful account accumulates the expected amount of bad debts as of a given date; it is normal balance is a credit. It is a permanent account that is not closed to Income Summary at the end of the year.

6. Recording Bad Debts Expense is a closing entry. True or false? False. Recording Bad Debts expense is an adjusting entry in the allowance method.

7. The Income statement approach used to estimate bad debts is based in Accounts Receivable in the balance sheet. Accept or Reject? Reject. It is based on a percentage of the dollar volume of net credit sales on the Income Statement.

8. In which approach is the balance if the Allowance for doubtful Accounts considered when the estimate of bad