Ross, Immediately After Receiving a Note from a Customer, Discounted

question 74

Multiple Choice

Ross, immediately after receiving a note from a customer, discounted it at the bank and received the proceeds. Ross's entry on his books would include a:

• A) credit to Cash.
• B) debit to Interest Income.
• C) credit to Notes Receivable.
• D) All of the above

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Definitions:

Bad Debts Expense

An expense account reflecting the cost of accounts receivable that a company does not expect to collect.

Direct Write-Off Method

The method of writing off uncollectibles when they occur and thus not using the Allowance for Doubtful Accounts. This method does not fulfill the matching principle of accrual accounting.

Income Statement Method

A technique used to create a company's income statement to report earnings and financial performance.

Income Statement Approach

A method that estimates the amount of Bad Debts Expense that will result based on a percentage of net credit sales for the period. The amount of the expected bad debt is added to the existing balance of Allowance for Doubtful Accounts.