financial acc ch 6

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

current asset

During the month, Cellum, Inc. sold 100 cells at a price of $100 each. Each cell was sold at a 1% sales discount. Cellum had returns of $198 (net of discounts) and incurred bank service charges of $20. Net sales for the month ended equals $

9,702 $99 for each cell * 100 - 198 returns

The receivables turnover ratio is computed as ______.

Net Sales divided by Average Net Trade Accounts Receivable

Using the allowance method, which is the correct adjusting journal entry to record bad debt expense?

Debit Bad Debt Expense and credit Allowance for Doubtful Accounts

Bad debt expense is included in the category ______ net income and stockholders' equity.

General and Administrative Expenses on the income statement and decreases

Which of the following are other account titles for Bad Debt Expense? (Select all that apply.) Sales Discounts and Allowances Uncollectible Accounts Expense Provision for Uncollectible Accounts Doubtful Accounts Expense

Uncollectible Accounts Expense Provision for Uncollectible Accounts Doubtful Accounts Expense

Deposits in transit are ______.

added to the bank balance

The account that reports the amount that may not be collected and is matched against credit sales of the period is referred to as ______.

bad debt expense

Which of the following would be deducted from the cash balance per the bank statement when preparing a bank reconciliation? deposits in transit outstanding checks interest paid NSF checks

outstanding checks

Who normally pays for shipping when the shipping terms are FOB destination?

seller

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

$21,540,000 is the gross receivables $19,500,000 is the expected amount to be collected from customers $2,040,000 is the amount estimated to be uncollectible

Lassiter Corp.'s cash balance in the accounting records is $80,000. When Lassiter receives the bank reconciliation, the following items were discovered: Outstanding check $10,000 NSF checks 4,000 Electronic fund transfer deposits not yet recorded by the company 3,000 Deposits in transit 5,000 What is the corrected cash account balance?

79,000

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

A bank reconciliation

Which method for accounting for doubtful accounts is more accurate?

Aging of accounts receivable

The allowance method requires that ______. (Check all that apply.) Bad Debt Expense be recorded in the same period as the related credit sales Allowance for Doubtful Accounts be netted against Accounts Receivable Bad Debt Expense be recorded in the period a specific customer's account is written off (removed)

Bad Debt Expense be recorded in the same period as the related credit sales Allowance for Doubtful Accounts be netted against 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.

What are the financial statement effects of recording bad debt expense using the allowance method? (Check all that apply.) Increase revenues Decrease assets Increase expenses Increase assets

Decrease assets Increase expenses

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? (Check all that apply.) Highly-liquid investments with original maturities of 3 months or less US Treasury bonds that mature in 1 year Accounts Receivable Notes receivable that mature in 5 months

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

Identify which of the following would cause timing differences between the bank statement and what is recorded in a company's cash account. Outstanding checks Bank service charges Deposits in transit Accounts payable NSF checks Accounts receivable

Outstanding checks Bank service charges Deposits in transit NSF checks

Ace Electronics recorded a debit to Sales Returns and Allowances and a credit to Accounts Receivable, along with a debit to Inventory and a credit to Cost of Goods Sold. What business event must have taken place?

The customer received a damaged product and returned it.

The expense associated with the estimate of the amount of accounts receivable that may not be collected during the year is referred to as ______.

bad debt expense

Accepting only cash and canceling a credit card program that previously allowed customers to purchase merchandise on credit may cause ______. (Check all that apply.) bad debt expense to decrease sales to increase wage expense to increase sales to decrease

bad debt expense to decrease sales to decrease

Accounts Receivable is classified on the ______.

balance sheet as a current asset

Short-term, highly liquid investments such as money market funds or treasury bills are classified as ______.

cash equivalents

Credit card companies earn revenues from ______. (Check all that apply.)

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

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

credit

Sales to customers in which the customers pay within 30 days are referred to as ______. (2)

credit sales, sales on account

When using the allowance method, the adjusting entry to record estimated bad debt expense includes a ______. (Check all that apply.) credit to Allowance for Doubtful Accounts credit to Accounts Receivable credit to Bad Debt Expense debit to Accounts Receivable debit to Bad Debt Expense

credit to Allowance for Doubtful Accounts debit to Bad Debt Expense

In a bank reconciliation, an outstanding check is ______.

deducted from the bank balance

Outstanding checks written by the company should be a(n) ______ on the company's bank reconciliation.

deduction from the bank balance

A check that you have written has cleared the bank when ______.

funds have been withdrawn from your bank account to cover the check

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

identify the contract b/w company + customer identify the performance obligations (promised goods + services) determine the transaction price allocate the transaction price to the performance obligations recognize revenue when each performance obligation is satisfied (or over time if a service is provided over time)

The objectives when accounting for accounts receivable and bad debts are to ______. (Check all that apply.) match the cost of bad debts to the accounting period in which the related credit sales are made increase both accounts receivable and net income by the amount of credit sales that are unlikely to be collected as cash report accounts receivable net of the amount the company does not expect to collect (i.e., at the net realizable value)

match the cost of bad debts to the accounting period in which the related credit sales are made report accounts receivable net of the amount the company does not expect to collect (i.e., at the net realizable value)

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

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

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

sales returns + allowances, sales discounts, credit card discounts

Which of the following is not an accurate statement about internal control? It helps protect against the theft of assets. It guarantees the management will behave ethically. It enhances the reliability of accounting information. It promotes efficient and effective operations.

It guarantees the management will behave ethically.

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

Sales Returns and Allowances

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

$2,040,000 is the amount estimated to be uncollectible $21,540,000 is the gross receivables $19,500,000 is the expected amount to be collected from customers

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

What would cause a bank statement not to agree with the cash balance in the accounting records? (Select all that apply.) Deposits outstanding that have been recorded on the company's records, but not on the bank's. The bank made an error in recording a deposit made by the company. The company wrote checks that have cleared the bank. The bank paid interest that the company has not recorded. The company made an error in recording a deposit.

Deposits outstanding that have been recorded on the company's records, but not on the bank's. The bank made an error in recording a deposit made by the company. The bank paid interest that the company has not recorded. The company made an error in recording a deposit.

Companies may use which of the following to motivate sales and collections? (Select all that apply.) Sell merchandise FOB shipping point Provide discounts for early collection Allow customers to pay in advance Allow customers to purchase on credit

Provide discounts for early collection Allow customers to purchase on credit

During the year, ABC Corp. realizes that a particular customer will never pay. What action should ABC take?

Write off the uncollectible account and its corresponding allowance from the accounting records.

methods to motivate groups of customers to pay its products + make payment for their purchases (3)

allowing consumers to use credit cards to pay for purchases, providing business customers direct credit + discounts for early payment, allowing returns from all customers under certain circumstances

Miss Happ, the accountant, forgot to make the adjusting entry for the bad debt estimate for the accounting period. As a result, ______. (Check all that apply.) assets will be overstated stockholders' equity will be overstated assets will be understated liabilities will be overstated liabilities will be understated stockholders' equity will be understated

assets will be overstated stockholders' equity will be overstated

The benefits of internal control procedures are that they ______.

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

Since accounting numbers, such as the allowance for doubtful accounts balance, are based on _____, financial statements are susceptible to management manipulation. (Enter one word per blank.)

estimates

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

Effective cash management includes ______. (Check all that apply.) minimizing the amounts of sales made on account preventing excess accumulation of cash in checking accounts safeguarding cash from theft maintaining accurate accounting records of cash flows

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

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. (Enter one word per blank.)

three

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

Which of the following is a current asset? (Check all that apply.) 2 yr NR AR NR w/in 90 days AP trade receivable 2 yr NP

AR, NR w/in 90 days, + trade receivable

Although there are some clear disadvantages associated with extending credit to customers, such as bad debt costs, most managers believe a particular advantage outweighs the costs. To which primary advantage do they refer?

Additional sales revenue

A $250 bank deposit made on the last day of the month did not appear on this month's bank statement. How would this item be treated on the bank reconciliation?

It would be added to the bank balance.

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

Removing an uncollectible account and its corresponding allowance from the accounting records is called ______.

a write-off

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

Which of the following would be added to the cash balance per the bank statement when preparing a bank reconciliation? deposits in transit interest paid outstanding checks NSF checks

deposits in transit

_____________ should be added to the cash balance per the bank statement when preparing a bank reconciliation

deposits in transit

A company's Bad Debt Expense reports the ______.

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

Which of the following timing differences result because of transactions that show up on the books but not on the bank statement? (Check all that apply.) bank service charges NSF checks outstanding checks interest deposits in transit

outstanding checks deposits in transit