31. A credit balance in the Allowance for Uncollectible Accounts before adjustment indicates that last year’s estimate of uncollectible accounts may have been too high.
32. A debit balance in the Allowance for Uncollectible Accounts before adjustment indicates that last year’s estimate of uncollectible accounts was too low.
33. Under the direct write-off method, bad debt expense is recorded at the time accounts are known to be uncollectible.
34. The direct write-off method is used for tax purposes but is generally not permitted for financial reporting.
35. The direct write-off method violates the matching principle.
36. Under the direct write-off method, recording an estimate of future uncollectible accounts includes a debit to Bad Debt Expense and a credit to the Allowance for Uncollectible Accounts.
37. Notes receivable are similar to accounts receivable but are more formal credit arrangements evidenced by a written debt instrument, or note.
38. Notes receivable typically arise from sales to customers.
39. Notes receivable are assets and are reported in the balance sheet.
40. Interest on a note receivable is calculated as the face value of the note times the annual interest rate stated on the note times the fraction of the year the note is outstanding.