Chapter 5: Intro to Accounting

A partial adjustment to the amount owed by the customer for goods that were not returned, but did not fully meet the customer's expectations is referred to as a sales

allowance.

Companies extend credit to customers and sell goods on account because

it increases sales

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(n) ___________discount.

Sales

Which of the following is a discount in the amount to be paid if the customer pays within a specified time period?

Sales discount

An informal credit arrangement with a customer for payment to be received after the sale is classified as a(n)

account receivable.

A customer account that is not expected to be collected is referred to as a(n)_________debt

bad

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_________________account

Allowance

A disadvantage to selling on account is

customers do not always pay.

When a customer returns a product for a refund, in which account is the entry recorded?

sales return

The allowance method is required by___________

GAAP

What is the formula for the receivables turnover ratio?

Net credit sales divided by average accounts receivable (net).

A trade discount is

a percentage reduction from list price.

The amount of cash owed to a company by its customers from the sale of goods or services is referred to as

accounts receivable.

The formula to compute the receivables turnover ratio is net credit sales divided by

average accounts receivable