Suppose customers express greater satisfaction with the accuracy of their charge account bills but the performance measures for the average age of accounts receivable and for bad debts do not improve. Explain why this might happen
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Suppose customers express greater satisfaction with the accuracy of their charge account bills but the performance measures for the average age of
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- Which of the following best represents a positive product of a lower number of days sales in receivables ratio? A. collection of receivables is quick, and cash can be used for other business expenditures B. collection of receivables is slow, keeping cash secured to receivables C. credit extension is lenient D. the lender only lends to the top 10% of potential creditorsShimmer Products is considering which bad debt estimation method works best for its company. It is deciding between the income statement method, balance sheet method of receivables, and balance sheet aging of receivables method. If it uses the income statement method, bad debt would be estimated at 5.6% of credit sales. If it were to use the balance sheet method, it would estimate bad debt at 13.7% percent of accounts receivable. If it were to use the balance sheet aging of receivables method, it would split its receivables into three categories: 0–30 days past due at 5%, 31–90 days past due at 21%, and over 90 days past due at 30%. There is currently a zero balance, transferred from the prior years Allowance for Doubtful Accounts. The following information is available from the year-end income statement and balance sheet. There is also additional information regarding the distribution of accounts receivable by age. Prepare the year-end adjusting entry for bad debt, using A. Income statement method B. Balance sheet method of receivables C. Balance sheet aging of receivables method D. Which method should the company choose, and why?What are some possible negative signals when the product of the accounts receivable turnover ratio is lower (i.e., fewer times)?
- Which of the following best describes the concept of the aging method of receivables? a.An accurate estimate of bad debt expense may be arrived at by multiplying historical bad debt rates by the amount of credit sales made during a period. b.Accounts receivable should be directly written off when the due date arrives and the customers have not paid the bill. c.Estimating the appropriate balance for the allowance for doubtful accounts results in the appropriate value for net accounts receivable on the statement of financial position. d.The precise amount of bad debt expense may be arrived at by multiplying historical bad debt rates by the amount of credit sales made during a period.Which of the following best describes the objective of estimating bad debt expense with the percentage of credit sales method? a.To estimate the amount of bad debt expense based on an aging of accounts receivable. b.To estimate bad debt expense based on a percentage of credit sales made during the period. c.To determine the amount of uncollectible accounts during a given period. d.To facilitate the use of the direct write-off method.Which is correct with regards to the effects of restricting credit standards? a. Investment in accounts receivable will likely increase b. An increase in recognition of doubtful accounts expense will probably happen c. Positive impact on the net profit can be noted from decline in the quantity of goods sold d. Quantity of units sold will probably decrease and will result to a lower sales revenue
- When a large account receivable balance is due from one client it is logical to use the direct write-off method to adjust the bad debt expense and accounts receivable balance. Under different circumstances, another method is used called the allowance method. Discuss the best reason(s) for using the allowance method and give some examples of companies that are likely to use that method. Also explain why it would ever be appropriate to use the direct write-off method, especially since it is not GAAWhen a large account receivable balance is due from one client it is logical to use the direct write-off method to adjust the bad debt expense and accounts receivable balance. Under different circumstances, another method is used called the allowance method. Discuss the best reason(s) for using the allowance method and give some examples of companies that are likely to use that method. Also explain why it would ever be appropriate to use the direct write-off method, especially since it is not GAAP.Suppose a company’s current credit terms are 1/10,net 30, but management is considering changingits terms to 2/10, net 40, relaxing its credit standards, and putting less pressure on slow-payingcustomers. How would you expect these changesto affect (a) sales, (b) the percentage of customerswho take discounts, (c) the percentage of customers who pay late, and (d) the percentage of customers who end up as bad debts?
- Question Which of the following changes in credit standards and conditions would cause an improvement in profit? A) Increase in the turnover of accounts receivable B) Decrease in units sold C) Increase in collection expenses D) An increase in the percentage of doubtful accounts receivable.Which one of the following statements concerning bad debt expenses is correct? Select one: a. When you write off an accounts receivable, you debit bad debt expense and credit accounts receivable. b. You record bad debt expense when individual accounts receivable becomes uncollectible. c. Under the percentage of receivables method, bad debt expense is the year-end receivables multiplied by the % of uncollectible accounts. d. When the allowance method is used, bad debt expense is recorded before the accounts are written off.Indicate the most likely effect of the following changes in credit policy on the receivables turnoverratio and days to collect ( 1 for increase, 2 for decrease, and NE for no effect).a. Granted credit with shorter payment deadlines.b. Granted credit to less-creditworthy customers.c. Increased effectiveness of collection methods.
