SB Ch.6 - ACC211

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.

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

Malik Corp.'s bank statement has an ending balance of $50,000. The deposits in transit were $6,000. NSF checks were $1,000. Checks outstanding at the end of the month were $3,000. Using the bank statement, what is the corrected cash balance?

$52,000 50k+6k-3k nsf is already recorded by the bank

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 800000*0.02 = 16000 800000-16000 = 784,000

Acme, Inc.'s books show an ending cash balance of $10,000 before preparing the bank reconciliation. Given the bank reconciliation shows outstanding checks of $3,000; deposits in transit of $2,000; NSF check of $100; and interest earned on the bank account of $10, the company's up-to-date ending cash balance equals ______.

$9,910 10,000-100+10 outstanding checks and deposits in transit are already recorded in the books. outstanding checks are checks the bank has not cleared yet (meaning money has not been taken from the company's account yet)

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 Net sales/ avg net trade accounts receivable 720000/[(62000+58000)/2]

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 $_______

9702

Which method for accounting for doubtful accounts is more accurate?

Aging of accounts receivable

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

Bank service charges Deposits in transit Outstanding checks NSF checks

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.

Which of the following are other account titles for Bad Debt Expense?

Doubtful Accounts Expense Uncollectible Accounts Expense Provision for Uncollectible Accounts

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

It guarantees the management will behave ethically.

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

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

Provide discounts for early collection Allow customers to purchase on credit

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

Sales returns and allowances Sales discounts Credit card discounts

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 estimated amount of credit sales that customers will likely fail to pay is recorded as bad debt expense in which period?

The same period as credit sales

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

When preparing a bank reconciliation, NSF checks are ______ and must be ______ the company's cash balance

bad checks that have been deposited; deducted from

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

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

balance sheet

Credit card companies earn revenues from ______

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

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

The allowance method is a method of accounting that ______ for estimated bad debts.

decreases net accounts receivable

A company's Bad Debt Expense reports the ______.

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

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

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

Which of these are cash equivalents?

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

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

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

net sales revenue

Which of the following is a noncurrent asset?

nontrade receivable due in 3 years 2-year notes receivable

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

outstanding checks deposits in transit

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

When merchandise is returned for a refund or for credit to be applied to other purchases, the account called Sales ______ and ______ is debited.

sales (returns) and (allowances)

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