Quiz 7

A company expects a loss from uncollectible accounts equal to one-fourth of one percent of the sales on account during the year. If the sales on account amounted to $400,000, the estimated uncollectible accounts losses would be

$1,000

Under the allowance method of accounting for uncollectible accounts, the write-off of an account as uncollectible affects

The income statement, the balance sheet, the statement of retained earnings (all of these)

Net realizable value is computed as

Accounts Receivable - Allowance for Bad Debts

Under the direct write-off method, the account credited when an account is determined to be uncollectible is

Bad Debt Expense

An income statement provides information as to the status of a business at a specified date

False

Gross profit is not the same as gross margin

False

The current ratio is computed by adding current assets and current liabilities

False

The percentage of sales method is often referred to as aging of receivables.

False

Net sales - Cost of merchandise sold =

Gross Profit

Which of the following accounts is used only at the close of the accounting period to adjust the merchandise inventory account and summarize the temporary owner's equity accounts?

Income Summary

Which of the following accounts is not considered a selling expense?

Insurance Expense

The allowance method is consistent with which of the following accounting concepts?

Period Concept

Under the direct write-off method, bad debt expense is a recognized when it has been determined that an account is uncollectible.

Trrue

Even though an account hs been written off using the direct write-off method, it may be collected

True

Inventory turnover is the number of times merchandise was sold during the accounting period

True

The single-step and multiple-step forms of the income statement produce the same netincome

True

Two basic methods are used for estimating the amount of uncollectible at the end of the accounting period: the percentage of sales method and the percentage of receivables method

True

Two methods used when accounting for uncollectible accounts are: the direct write-off method and the allowance method.

True

Under the direct write-off method, if an accounts receivable is written off in one accounting period and is collected in the next period, which of the following is required when reinstating the account?

a credit to Bad Debt Expense

In accounting for bad debts, Accounts Receivable is credited only when

a customer who is not going to pay has been identified

The heading on a balance sheet includes the following information in what order?

business name, statement name, statement date

The ability of a business to meet its current obligations may be determined by the

current ratio

When a previously written-off account is recovered in the same accounting period, under the direct write-off method, which of the following entries is required to reinstate the account?

debit Cash and credit Bad Debt Expense

A formal statement of the results of the operation of a business during an accounting period is called a(n)

income statement

The time needed to buy inventory, sell it, and collect the cash is the

operating cycle