Question

True/False

1. ____ Companies use two separate accounts in order to report accounts
receivable at its net realizable value.
2. ____ Bad debt expense is reported on the balance sheet as a contra account
to accounts receivable.
3. ____ The matching principle says that expenses should be recorded the same
period as the revenues they help generate.
4. ____ Once an account has been written off, it can never be reinstated on the
books, even if it is later collected.
5. ____ The net accounts receivable number on the balance sheet represents the
exact amount the company will collect in cash.
6. ____ All companies perform their estimation of uncollectible accounts in the
same manner.
7. ____ Frequently, bad debt expense and the ending balance in the allowance
for doubtful accounts will differ.
8. ____ The older a receivable, the less likely it is to be collected.
9. ____ The higher that receivables turnover is, the slower the receivables are
being collected.
10. ____ To make statements more accurate, bad debt expense is recorded when
a specific account is deemed uncollectible and written off.

Answer 1

Answer

• Requirements asked

1. ____ Companies use two separate accounts in order to report accounts receivable at its net realizable value.
   TRUE. Two account used are Account receivables and Allowance for Doubtful accounts. Net realizable value = Account receivables – Allowance account.
2. ____ Bad debt expense is reported on the balance sheet as a contra account to accounts receivable.
   FALSE. Bad Debt Expense is an Income Statement account, not reported on Balance Sheet.
3. ____ The matching principle says that expenses should be recorded the same period as the revenues they help generate.
   TRUE. As per matching principle, the expenses for a period are matched with the revenues they helped to generate in that period.
4. ____ Once an account has been written off, it can never be reinstated on the books, even if it is later collected.
   FALSE. Once written off, the account may get collected later and before recording such collection, these are re-instated in books of account.
5. ____ The net accounts receivable number on the balance sheet represents the exact amount the company will collect in cash.
   FALSE. Net realizable account receivables represents the ‘estimated’ value and not the exact amount.
6. ____ All companies perform their estimation of uncollectible accounts in the same manner.
   FALSE. Companies use different method, like percentage of sales method, Aging on Account receivables, percentage of ending account receivables, etc.