Financial Accounting LearnSmart 6

In a bank reconciliation, an outstanding check is:

deducted from the bank balance

A company's bad debt expense reports the

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

Sales to a customer in which the customers pay within 30 days are referred to as:

-credit sales -sales on account

Accounts Receivable (net) on the balance sheet refers to:

Accounts Receivable - Allowance for Uncollectible Accounts

Where is the amount of the not yet collected from customers at the end of the accounting period found? Which financial statement?

The Balance Sheet

Where is the amount earned during the accounting period found? Which financial statement?

The Income Statement

Where is cash collected during the accounting period found? Which financial statement?

The Statement of Cash Flows

During the year, a corporation realizes that a customer will never pay. What action does this corporation take?

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

Sales discounts should appear in the financial statements as :

a deduction from sales

Physically locking up assets or and electronically securing assets to other assets is a good system of internal control as long as there is:

a separation of duties

Deposits in transit are:

added to the bank balance

In a bank reconciliation, interest revenue earned on the bank account balance is:

added to the book balance

The allowance method is a method of accounting that ____________ net accounts receivable (as well as net income) for estimated bad debts

decreases

Since accounting numbers, such as the allowance of doubtful accounts balance, are based on ____________, financial statements are susceptible to management manipulation

estimates

What does FOB shipping point mean?

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

Nontrade receivables differ from trade receivables in that nontrade receivables:

result from lending money to employees

Net sales is reported on the:

the first line of the income statement

Percentage of credit sales method

this requires directly computing the desired amount of bad debt expense on the income statement

What are the most common causes of difference between the ending bank balance and the ending book balance of cash?

-Outstanding checks -Deposits in transit -Bank service charges -NSF checks -Interest -Errors

What are other account titles for Bad Debt Expense?

-Provision for Uncollectible Accounts -Uncollectible Accounts Expense -Doubtful Accounts Expense

What would cause a bank statement NOT to agree with the cash balance in the accounting records?

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

To help minimize bad debt expense and provide feedback, a good internal control system will require:

-a periodic aging of accounts receivable -approval of customers' credit history

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

-allow customers to purchase on credit -provide discounts for early collection

The allowance method requires that:

-allowance for doubtful accounts be netted against accounts receivable -bad debt expense be recorded in the same period as the related credit sales

The objectives when accounting for accounts receivable and bad debts are to:

-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 expects to collect (i.e. at the net realizable value)

What are two benefits to the seller of offering sales discounts to its customers?

-prompt receipt of cash -increase the likelihood the seller will receive the cash before the customer runs out of funds

Accounting for bad debts using the allowance method requires which 2 steps?

1. recording an adjusting entry for the estimated bad debts 2. write off the actual bad debts

Which method for accounting for doubtful accounts is most accurate?

Aging of Accounts Receivable

ABC Corp. wants to avoid lengthy cash collection periods and, therefore, allow customers to pay on a national credit card, rather than extend credit to their customers directly. What is the downside to this strategy?

Credit card companies charge fees that reduce profits

When the allowance method is used, the write-off of an uncollectible account:

has no effect on net income

A reader of financial statements determines when revenues are recognized by looking at the

note to the financial statements called "Summary of Significant Accounting Policies"

What is the Revenue Recognition Principle?

this principle states that revenues should be recognized when the goods or services are transferred to the customer, not necessarily when cash is received.

Aging of receivables method

this requires directly computing the desired allowance for doubtful accounts on the balance sheet and then computing the amount of the adjusting entry necessary to obtain this desired balance

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

three