ACG EXAM 2

True

Petty cash reimbursement requires a journal entry that involves a debit to the appropriate expenses and a credit to Cash.

False

T or F: A Company had net sales of $23,000, and its average account receivables were $5,700. Its accounts receivable turnover is 0.24.

False

T or F: A journal entry with a debit to cash of $980, a debit to Sales Discounts of $20, and a credit to Accounts Receivable of $1,000 means that a customer has taken a 10% cash discount for early payment.

True

T or F: After adjustment, the balance in the Allowance for Doubtful Accounts has the effect of reducing Accounts Receivable to its estimated realizable value.

True

T or F: Each sale of merchandise has two parts: the revenue side and the cost side.

False

T or F: If a company sells merchandise with credit terms 2/10 n/60, the credit period is 10 days and the discount period is 60 days.

True

T or F: If goods are shipped FOB destination, the seller does not record revenue from the sale until the goods arrive at their destination because the transaction is not complete until that point.

TRUE

T or F: Internal control of cash receipts aims to ensure that all cash received is properly recorded and deposited.

False

T or F: Sales of $350,000 and net sales of $323,000 could reflect sales discounts of $27,000.

True

T or F: The direct write-off method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible.

False

T or F: The expense recognition (matching) principle permits the use of the direct write-off method of accounting for uncollectible accounts when bad debts are very large in relation to a company's other financial statement items such as sales and net income.

True

T or F: The expense recognition (matching) principle requires use of the allowance method of accounting for bad debts.

True

T or F: The formula for computing interest on a note is: Principal of the note × Annual interest rate × Time expressed in fraction of year.

True

T or F: The maturity date of a note refers to the date the note must be repaid

True

T or F: The seller is responsible for paying shipping charges and bears the risk of damage or loss in transit if goods are shipped FOB destination.

True

T or F: When using the allowance method of accounting for uncollectible accounts, the entry to record the estimated bad debts expense is a debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts.

Is used to record the income effects of errors in making change and/or processing petty cash transactions.

The Cash Over and Short account:

FALSE

The Petty Cash account is a separate bank account used for small amounts.

Prepaid expenses and inventory are excluded from the calculation of the acid-test ratio.

The acid-test ratio differs from the current ratio in that:

Is also called the quick ratio.

The acid-test ratio:

False

T or F: 3. The accounts receivable turnover is calculated by dividing average accounts receivable by net sales.

Recognizes that a customer returned merchandise and/or received an allowance.

A debit to Sales Returns and Allowances and a credit to Accounts Receivable:

Earns net income by buying and selling merchandise.

A merchandiser:

Is most effective in evaluating the cash sales of a company.

All of the following are true of the number of days' sales uncollected ratio except:

There is no relationship between sales returns and allowances and the possibility of lost future sales.

All of the following statements regarding sales returns and allowances are true except:

Merchandise (goods) available for sale.

Beginning inventory plus net purchases is:

More liquid than cash.

Cash equivalents meet all of the following criteria except:

Are readily converted to a known cash amount.

Cash equivalents:

Are short-term, highly liquid investment assets.

Cash equivalents:

Customer checks, cashier checks, and money orders.

Cash, not including cash equivalents, includes:

Is the term used for the expense of buying and preparing merchandise for sale.

Cost of goods sold:

TRUE

If the Cash Over and Short account has a credit balance at the end of the period, the amount is commonly reported as miscellaneous revenue.

No effect on the expenses of the current period.

If the credit balance of the Allowance for Doubtful Accounts account exceeds the amount of a bad debt being written off, the entry to record the write-off against the allowance account results in:

Establishing responsibilities.

Internal control policies and procedures have limitations not including:

All collections for sales are received immediately upon making the sales.

Internal control procedures for cash receipts do not require that:

is substantially lower than 1.

Liquidity problems are likely to exist when a company's acid-test ratio:

Assuring that no loss will occur.

Managers place a high priority on internal control systems because the systems assist managers in all of the following except:

is a current asset

Merchandise inventory:

No effect on net income; no effect on total assets.

On October 12 of the current year, a company determined that a customer's account receivable was uncollectible and that the account should be written off. Assuming the allowance method is used to account for bad debts, what effect will this write-off have on the company's net income and total assets?

Cash, short-term investments, and current receivables.

Quick assets are defined as:

To be able to charge more due to fees and interest.

Sellers allow customers to use credit cards for all of the following reasons except:

False

Since petty cash is concerned with such small amounts of cash, it is not necessary to document all transactions with a petty cash receipt.

FALSE

The clerk who has access to the cash in the cash register should also have access to the cash register tape or file.

2% cash discount if the amount is paid within 10 days, or the balance due in 30 days.

The credit terms 2/10, n/30 are interpreted as:

A debit to Petty Cash and a credit to Cash.

The entry to establish a petty cash fund includes:

A debit to Postage Expense.

The entry to record reimbursement of the petty cash fund for postage expense should include:

The use of the allowance method of accounting for bad debts.

The expense recognition (matching) principle, as applied to bad debts, requires:

The operating cycle is shortened by credit sales.

The following statements are true regarding the operating cycle of a merchandising company except:

Merchandise inventory appears on the balance sheet of a service company.

The following statements regarding merchandise inventory are true except:

Reduced processing errors.

The impact of technology on internal controls includes:

Permits the use of the direct write-off method when bad debts expenses are relatively small.

The materiality constraint, as applied to bad debts:

Dividing accounts receivable by net sales and multiplying by 365.

The number of days' sales uncollected is calculated by:

Estimate how much time is likely to pass before the current amount of accounts receivable is received in cash.

The number of days' sales uncollected is used to:

Is used to evaluate the liquidity of receivables.

The number of days' sales uncollected:

Separate recordkeeping from custody of assets.

The principles of internal control include:

Establish responsibilities.

Two clerks sharing the same cash register is a violation of which internal control principle?

Maintain adequate records.

Which internal control principle prescribes the use of pre-numbered printed checks?

Allowance method of accounting for bad debts.

Which of the following is an accounting procedure that (1) estimates and reports bad debts expense from credit sales during the period the sales are recorded, and (2) reports accounts receivable at the estimated amount of cash to be collected?

Guarantee a return to investors.

Which of the following is not one of the policies and procedures that make up an internal control system?

Credit card expense is not recorded by the seller.

Which of the following is not true regarding a credit card expense?

For safety, only one person should open the mail, and that person should immediately deposit the cash received in the bank.

Which of the following procedures would weaken control over cash receipts that arrive through the mail?