Chapter 5 Receivables and Revenue

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Revenue should be recognized when it is earned, and not before.

TRUE

The principal amount of a note is the amount lent by the debtor and borrowed by the creditor.

FALSE

The two major types of receivables are accounts receivable and trade receivables.

FALSE

Uncollectible-Account Expense is included in Cost of Goods Sold on the income statement.

FALSE

Under the allowance method, companies are not allowed to use different methods to estimate UncollectibleAccount Expense.

FALSE

When goods are shipped FOB destination, revenue is recognized by the seller when the goods leave the seller's shipping dock.

FALSE

A trade discount is not considered in the transaction price.

FALSE

A typical sales discount might be stated as 2/10, n/30. This expression means that the seller is willing to discount the order by 10% if the buyer pays the invoice within 2 days of the invoice date.

FALSE

Accounts receivable represents a form of extending credit which requires customers to sign a promise to pay the business a definite sum at the maturity date, plus interest.

FALSE

Companies are not required to estimate expected future returns as part of the end-of-period adjusting entry process.

FALSE

Generally Accepted Accounting Principles (GAAP) allow companies to use either the direct write-off method or the allowance method to determine Uncollectible-Account Expense.

FALSE

The Allowance for Uncollectible Accounts has a normal debit balance because it is an asset account.

FALSE

The general ledger has a separate account receivable for each customer.

FALSE

The principal amount of a note is the amount borrowed by the creditor.

FALSE

Accounts (trade) receivable are amounts to be collected from customers from the sale of goods or services.

TRUE

Accounts receivable are reported on the balance sheet at their net realizable value.

TRUE

As items are actually returned, the company reduces its sales refunds payable account for the amount of cash or accounts receivable credit it gives back to customers.

TRUE

By selling on credit, companies run the risk of not collecting some receivables.

TRUE

Customers usually have a right to return unsatisfactory or damaged merchandise to sellers for refund, credit, or exchange.

TRUE

Interest rates are always for an annual period unless stated otherwise.

TRUE

Large customers with excellent credit histories and cash flows often get trade discounts for making large purchases.

TRUE

Step 3 of the revenue recognition model requires that the seller set the price of the sale at the amount the seller expects to receive from the customer.

TRUE

The maker of a note is the borrower.

TRUE

The maturity value of a note is the sum of the principal amount of a note plus the interest over the term of the note.

TRUE

The multiple subsidiary ledgers for accounts receivable shows the separate accounts for each individual customer.

TRUE

The shipping terms in the sales contract determine when ownership of goods changes hands between the buyer and the seller.

TRUE

The typical credit cycle for most sales on account is 30 days.

TRUE

Under the allowance method, Uncollectible-Account Expense is recorded in the same accounting period as the sale.

TRUE

Under the direct write-off method, the journal entry to record Uncollectible-Account Expense includes a credit to Accounts Receivable.

TRUE


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