Ch. 7 Cash and Receivables

Which of the following are services performed by a factor? (Select all that apply.)

Handle billing and collection of accounts receivable, Buy accounts receivable.

What does a sales discount represent?

A reduction in the amount to be paid if paid within a specified period of time.

Checks received from customers that have not been deposited yet are included where on a company's balance sheet?

In the current asset "cash" account.

At what amount are accounts receivable recorded?

The amount expected to be collected.

The difference between the gross method and net method of recording sales revenue, in terms of the effect on income is what?

The timing of the recognition of any discounts not taken varies and could occur in different reporting periods.

A trade discount is?

a percentage reduction from list price

Which of the following items are not included in cash?

accounts receivable from customers

A contra-asset account is used to reduce the carrying value of accounts receivable to the amount of cash expected to be received under the _____ method of accounting for bad debts.

allowance

When the amount of bad debts is material, GAAP requires the _____ method be used to reduce the carrying value of accounts receivable to the amount of cash expected to be received. (Enter only one word.)

allowance

When initially recorded, the typical accounts receivable is valued at the

amount expected to be received

Which of the following items are classified as receivables? (Select all that apply.)

amounts loaned and expected to be repaid, tax refund claims, & amounts owed by customers

Restricted cash is usually reported in the balance sheet

as noncurrent assets.

Internal control procedures for cash disbursements (other than small disbursements from petty cash) should include that (Select all that apply.)

checks are signed by authorized individuals, all disbursements (other than petty cash) are made by check, & all expenditures are authorized.

Tim Corporation uses the net method to record sales on account. Tim sells goods on account for $5,000 with terms 2/10, n/30. The journal entry to record this transaction will include

credit to sales, $4,900, debit to accounts receivable, $4,900.

Kilroy uses the net method to record sales on account. Kilroy sells goods on account for $1,000 with terms 2/10, n/30. The journal entry to record this transaction will include (Select all that apply.)

credit to sales, $980, debit to accounts receivable, $980. Reason- $1,000 x 2% = $20; $1,000 - $20 = $980.

Paredes uses the gross method to record sales on account. Paredes sells goods on account for $1,000 with terms 2/10, n/30. The journal entry to record this transaction will include

debit to accounts receivable, $1,000, credit to sales, $1,000.

Kim Corp. uses the gross method to record sales on account. Kim sells goods on account for $5,000 with terms 2/10, n/30. The journal entry to record this transaction will include

debit to accounts receivable, $5,000, credit to sales, $5,000.

The transfer of a note to a financial institution is referred to as?

discounting

The transfer of a note receivable to a financial institution for an amount less than the face amount of the note is referred to as

discounting a note receivable.

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

disguise real prices from competitors, give quantity discounts to customers, & change prices without publishing a new catalog.

In a(n) _________ arrangement, the company sells its accounts receivable to a financial institution and the financial institution handles the billing and collections. (Enter only one word.)

factoring

Under the gross method, the initial recording of sales revenue will be ______ the amount recorded under the net method.

higher than

Accounts receivable are normally classified

in the balance sheet as current assets.

(Face amount x annual rate x fraction of the annual period) is the formula for?

interest on a note.

A company's plans to adhere to policies and procedures, promote operational efficiency, minimize errors and theft, and enhance the reliability and accuracy of accounting data are referred to as

internal controls.

The gross method and the _____ method are the two ways to record sales discounts.

net

In a(n) _________ bearing note, interest is deducted from the face amount of the loan to determine the cash proceeds available to the borrower at the time of loan.

non-interest

With a _________ bearing note, the interest is deducted from the principal of the note.

noninterest

A formal credit arrangement between a creditor and debtor is called a(n)

note receivable

A formal, signed credit agreement between a lender and a borrower is called a(n) _____ by the lender.

note receivable

The transfer of a(n) ____ to a financial institution is called discounting.

note receivable

Internal control consists of plans to (Select all that apply.)

promote operational efficiency, minimize errors and theft, & encourage adherence to company policies and procedures.

A company's claims to the future collection of cash, other assets, or services is called a ________.

receivable

Which of the following is usually reported on the balance sheet as a noncurrent asset?

restricted cash

A cash discount representing a reduction in the amount to be paid by a credit customer if the customers pay within a specified period of time is also referred to as a(n) _____ discount

sales

An _______ borrowing occurs when accounts receivable are assigned or pledged as collateral for a loan.

secured

Assigning or pledging accounts receivable is used in a

secured borrowing.

Accounts receivable are almost always considered current assets because?

their normal collection, even if longer than a year, is part of the normal operating cycle.

The _____ recognizes a note receivable in a secured borrowing agreement. (Enter only one word.)

transferee

The formula for calculating interest multiplies which of the following? (Select all that apply.)

Face amount of the note, Fraction of the annual period, & Annual interest rate

A(n) ____ receivable is an informal credit arrangement with trade customers, whereas a(n) ____receivable is a formal signed credit arrangement between a creditor and a debtor.

Account, note

Which of the following is an internal control procedure for cash disbursements?

Disbursements should be made by check.

An application where the interest rate stays the same over time, but interest revenue increases as the rate is multiplied by a receivable balance that increases is referred to as what?

Effective interest method

True or false- A note receivable is an informal agreement, whereas an account receivable is accompanied by a formal promissory note.

F

True or false- The gross method and the cash method are the two ways to record sales discounts.

F

T or F- An account receivable is informal and a note receivable is formal and accompanied by a promissory note.

T

T or F- Noninterest bearing is a misnomer as both types of note bear interest. With a noninterest bearing note, interest is deducted at the outset of the loan.

T

True or false- Both interest bearing and noninterest bearing notes bear interest.

T

Who houses the financed receivables on their balance sheet in a secured borrowing?

Transferor

True or false- With the effective interest method, interest revenue differs between periods.

True