Chapter 5 Financial Accounting
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
