acct 1201 - ch. 6 learnsmart

Cellar's Inc. sold $800,000 of merchandise with sales terms of 2/10, n/30 and the customers paid within 10 days. The net sales equals ______.

$784,000; $784,000 (= $800,000 Sales - ($800,000 x 2% discount))

Companies may use which of the following to motivate sales and collections?

(O) Allow customers to purchase on credit (X) Allow customers to pay in advance (O) Provide discounts for early collection (X) Sell merchandise FOB shipping point

Identify which of the following would cause timing differences between the bank statement and what is recorded in a company's cash account.

(O) NSF checks (O) Bank service charges (O) Outstanding checks (O) Deposits in transit (X) Accounts payable (X) Accounts receivable

An analyst sees the line item Trade accounts receivable, net of allowances of $2,040,000, with a balance of $19,500,000. Which of the following statements is correct.

(X) $19,500,00 is the sum of all of its customers' account balances (O) $2,040,000 is the amount estimated to be uncollectible (O) $21,540,000 is the gross receivables (O) $19,500,000 is the expected amount to be collected from customers

Which of the following is a current asset?

(X) 2-year notes payable (O) Accounts receivable (O) Notes receivable due within 90 days (X) 2-year notes receivable (X) Accounts payable (O) Trade receivable

Which of the following are typically netted against sales to arrive at net sales?

(X) Bank service charges (O) Sales discounts (X) Cost of goods sold (O) Credit card discounts (O) Sales returns and allowances

Which of the following is not an accurate statement about internal control?

(X) It enhances the reliability of accounting information. (X) It helps protect against the theft of assets. (X) It promotes efficient and effective operations. (O) It guarantees the management will behave ethically.

Which of the following timing differences result because of transactions that show up on the books but not on the bank statement?

(X) interest (X) NSF checks (X) bank service charges (O) deposits in transit (O) outstanding checks

Accepting only cash and canceling a credit card program that previously allowed customers to purchase merchandise on credit may cause ______.

- bad debt expense to decrease - sales to decrease

Credit card companies earn revenues from ______.

- charging the credit card holder interest - charging the retailer a fee for each credit card sale

Beckers, Inc. accepts major credit cards from its customers. The credit card companies charge 2%. The entry to record the collection of $1,000 in credit card sales includes a ______.

- debit to Cash of $980 - credit to Sales of $1,000 - debit to Credit card discount of $20

The benefits of internal control procedures are that they ______.

- improve the efficiency and effectiveness of operations - protect against theft of assets - enhance the reliability of accounting information

Bad Debt Expense ______.

- is an estimate - is a cost of extending credit to customers

Effective cash management includes ______.

- preventing excess accumulation of cash in checking accounts - maintaining accurate accounting records of cash flows - safeguarding cash from theft

Sales to customers in which the customers pay within 30 days are referred to as ______.

- sales on account - credit sales

Rank the the 5 step process of recognizing revenue for bundled goods and services listing the 1st step at the top.

1. Identify the contract between the company and customer 2. Identify the performance obligations (promised goods and services) 3. Determine the transaction price 4. Allocate the transaction price to the performance obligations 5. Recognize revenue when each performance obligation is satisfied (or over time if a service is provided over time)

Net sales revenue is $720,000. Beginning and ending net trade accounts receivable are $62,000 and $58,000, respectively. Calculate the receivables turnover ratio.

12.0 times; 12.0 times (= $720,000 / (($62,000 + $58,000) / 2))

Muffins & Turnovers, Inc.'s net trade accounts receivable are $880 and $820 at the end of 2019 and 2018 respectively. Net sales for 2019 are $7,225. The accounts receivable turnover for 2019 is ______ times.

8.5; $7,225 / (($880+820) / 2) = 8.5 times

Which method for accounting for doubtful accounts is more accurate?

Aging of accounts receivable

ABC Corp. wants to avoid lengthy cash collection periods and, therefore, allows customers to pay with a national credit card, rather than extend credit to its customers directly. What is the downside to such a strategy?

Credit card companies charge fees that reduce profits.

The entry to record the collection of cash from major credit cards includes a debit to ______.

Credit card discount

What conclusion are managers likely to draw from a constant increase to sales returns and allowances?

Customers are unhappy with the quality of the merchandise.

What does FOB shipping point mean?

Goods are owned by the buyer when they leave the seller's place of business

Which of these are cash equivalents?

Highly-liquid investments with original maturities of 3 months or less

The receivables turnover ratio is computed as ______.

Net Sales divided by Average Net Trade Accounts Receivable

Which method for accounting for doubtful accounts is easier to apply but less accurate and thus tends to be used on a monthly basis, instead of on an annual basis?

Percentage of total credit sales method

When a customer returns a product for a refund, in which of the seller's accounts is the entry recorded?

Sales Returns and Allowances

The challenge businesses face when estimating the allowance for doubtful accounts is that ______.

at the time of the sale, it is not known which particular customer will be a "bad" customer

The line item Trade accounts receivable, net of allowances will be found on the ______.

balance sheet

When a business sells goods to a customer, and the customer promises to pay later, this is referred to as ______ sales.

credit

When an entry is recorded with a debit to Accounts Receivable and credit to Sales Revenue, then the sale was a(n) ______ sale.

credit

Accounts Receivable is classified as a ______ because the cash is expected to be received within a year.

current asset

A company's Bad Debt Expense reports the ______.

estimated amount of this period's credit sales that customers will fail to pay

On the income statement, Sales revenue less Credit card discounts less Sales discounts less Sales returns and allowances equals the line item called ______ _______.

net sales

Allowing credit cards, returns or discounts for early payment affects the recording of ______.

net sales revenue

When a company sells phones bundled with a one-year service contract, then the portion of revenue allocated to the one-year service is recognized ______.

over time as the service is provided

In addition to safeguarding cash from theft, maintaining accurate accounting records of cash flows and other controls, effective cash management also involves ______.

preventing excess accumulation of cash in checking accounts

A timing difference in cash occurs when a company records a transaction either before or after the bank records the same transaction. A bank ______ is used to explain these timing differences

reconciliation

On January 1, goods were picked up by a FedUp Delivery, Inc. The goods arrived at the customer's place of business on January 12. If the seller recorded the sale on January 1, then the terms must have been FOB ______.

shipping point

FOB destination means that goods are owned by the buyer as soon as ______.

they arrive at the buyer's place of business

Short-term highly liquid investments with a maturity of ______ months or less that can be readily converted to cash with little risk of loss are classified as cash equivalents.

three

If a company records a transaction before the bank records the same transaction, this is called a/an ______ difference.

timing