Chapter 5 Financial Accounting

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What is the formula for the receivables turnover ratio

Net credit sales divided by average accounts receivable (net).

The amount of cash owed to a company by its customers from the sale of goods or services is referred to as

accounts receivable

A trade discount is a reduction from the list price, which is used to:

1. change prices without publishing a new catalog 2. give quantity discounts to customers 3. disguise real prices from competitors

The allowance method is required by

GAAP

When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a

Sales Return

A cash discount representing a reduction in the amount to be paid by a credit customer if the customer pays within a specified period of time is also referred to as a

Sales discount

Which of the following is a discount in the amount to be paid if the customer pays within a specified time period

Sales discount

When a customer returns a product for a refund, in which account is the entry recorded?

Sales return

The account "Allowance for Uncollectible Accounts" is classified as

a contra asset to accounts receivable

A trade discount is

a percentage reduction from list price

The percentage-of-receivables method of estimating bad debt applies

a single percentage to accounts receivable

An informal credit arrangement with a customer for payment to be received after the sale is classified as a

account receivable.

A company that expects that some of its customers will not pay the agreed upon sales price must utilize the

allowance method

The formula to compute the receivables turnover ratio is net credit sales divided by

average accounts receivable

A customer account that is not expected to be collected is referred to as a

bad debt

The cost of estimated accounts receivable that will not be collected is referred to as

bad debt expense

A disadvantage to selling on account is

customers do not always pay.

Companies extend credit to customers and sell goods on account because

it increases sales

Accounts receivable are typically classified as current assets because

they will be converted to cash within 1 year.

A customer account that is not expected to be collected is referred to as a bad debt or

uncollectible, doubtful, or allowance


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