Wk 1 – Practice: Topic 2: Selling on Credit and Collecting Cash Quick Check

Why is it important to require that all cash receipts be deposited daily in bank accounts? -A large accumulation of cash can tempt even the most trusted employee. -The statement of cash flows can't be prepared until cash deposits are made daily. -Banks require daily cash deposits in business bank accounts in order to keep the accounts open. -No revenue can be recognized until the cash is deposited in the bank.

A large accumulation of cash can tempt even the most trusted employee.

When a company has a generous credit policy, cash is tied up in receivables and the company must finance its expansion or the payment of its bills through increased borrowing. What label is given to this cost of selling on credit? -Bad debt cost -Bookkeeping cost -Carrying cost -Sales returns and allowances cost

Carrying cost

Sales Discounts is which type of account? -Expense -Contra-revenue -Contra-expense -Revenue

Contra-revenue

Sales Returns and Allowances is which type of account? -Contra-expense -Revenue -Expense -Contra-revenue

Contra-revenue

A customer of Boulder Company returned goods previously purchased on credit. The customer had not yet paid for the goods. What is included in the journal entry necessary in the books of Boulder Company to record this sales return? -CREDIT to Accounts Payable -CREDIT to Inventory -DEBIT to Sales Returns and Allowances -DEBIT to Accounts Receivable -DEBIT to Cash -CREDIT to Sales Returns and Allowances

DEBIT to Sales Returns and Allowances

Which of the following is not a cash control procedure? -Deposit all cash receipts daily -Make all cash disbursements by check -Separate the handling and recording of cash -Invest excess cash in high-yielding securities

Invest excess cash in high-yielding securities

What problem is caused for you if you have a credit policy of requiring cash payment in 30 days and your competitor has a credit policy of requiring cash payment in 75 days? -According to the FASB's accounting rules, no receivables can be reported if the cash payment period is less than 50 days. -You will have more cash tied up in the form of accounts receivable than do your competitors. -According to the FASB's accounting rules, the amount of revenue you are allowed to recognize is lower if you require more rapid payment. -More attractive credit terms can allow your competitor to steal customers from you.

More attractive credit terms can allow your competitor to steal customers from you.

Which of the following accounts would normally be found on the income statement? -Sales Discounts -Accounts Receivable -Taxes Payable -Unearned Service Revenues

Sales Discounts

Which of the following accounts would normally be found on the income statement? -Sales Returns and Allowances -Unearned Service Revenues -Cash -Rent Payable

Sales Returns and Allowances

The difference between gross sales and net sales is: -Sales discounts and sales returns and allowances -Cost of goods sold -Selling and administrative expenses -Gross margin

Sales discounts and sales returns and allowances