ACCT Ch.6

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

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 the customer. 2. identify the performance obligations. 3. determine the transaction price. 4.allocate the transaction price to the performance obligation. 5. recognize revenue when each performance obligation is satisfied.

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

Which of the following is a noncurrent asset? (Check all that apply.)

2-year notes receivable Nontrade receivable due in 3 years

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

Which of the following is a current asset? (Check all that apply.)

Accounts receivable Trade receivable Notes receivable due within 90 days

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

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

When merchandise is returned for a refund or for credit to be applied to other purchases, the account called Sales ________and ________debited. (Enter only one word per blank.)

Blank 1: Returns Blank 2: Allowances

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.)

Blank 1: estimates, estimation, or judgment

On the income statement, Sales revenue less Credit card discounts less Sales discounts less Sales returns and allowances equals the line item called __________________ ____________ . (Enter one word per blank.)

Blank 1: net Blank 2: sales

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.)

Blank 1: three or 3

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

Which of the following are typically netted against sales to arrive at net sales? (Check all that apply.)

Credit card discounts Sales discounts Sales returns and allowances

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? (Check all that apply.)

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. (Check all that apply.)

Outstanding checks NSF checks Deposits in transit Bank service charges

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? (Select all that apply.)

Provide discounts for early collection Allow customers to purchase on credit

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

Sales Returns and Allowances

What would cause a bank statement not to agree with the cash balance in the accounting records? (Select all that apply.)

The bank paid interest that the company has not recorded. The bank made an error in recording a deposit made by the company. 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.

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 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

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 decrease

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

balance sheet

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 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

Sales to customers in which the customers pay within 30 days are referred to as ______. (Check all that apply.)

credit sales sales on account

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 ______. (Check all that apply.)

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

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

Deposits in transit are ______.

deposits sent to the bank and recorded by the company but have not yet been recorded by the bank

Cash___________ are investments with original maturities of three months or less that are readily convertible to cash and whose value is unlikely to change. Examples include bank certificates and US Treasury bills.

equivalents

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

Bad Debt Expense ______. (Check all that apply.)

is a cost of extending credit to customers is an estimate

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

net sales revenue

The benefits of internal control procedures are that they ______. (Check all that apply.)

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

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. (Enter one word per blank.)

reconciliation

The objectives when accounting for accounts receivable and bad debts are to ______. (Check all that apply.)

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

Effective cash management includes ______. (Check all that apply.)

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

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

they arrive at the buyer's place of business

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

timing

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

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

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

Seller

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