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5 Written Questions

5 Matching Questions

  1. gross method
  2. window dressing
  3. operating cycle
  4. quantity discount
  5. working capital
  1. a Initially recognize the full sales price (gross) and later discount the gross.
  2. b Operating cycle is the time it takes, in general, for a company to begin with cash, convert the cash to inventory (or a service), sell the inventory (or service), and receive cash payment.
  3. c Current assets - Current liabilities. Working capital measures the extent to which a company's current assets cover its current liabilities. It is viewed as a measure of solvency and is often used in debt covenants to ensure that the borrower maintains a sufficient buffer of current assets to current liabilities. Like the current and quick ratio, however, working capital is a relatively weak measure of a company's solvency position.
  4. d Window dressing is a phrase used to describe the activity of managers who use accounting methods, judgments, and estimates or make operating decisions purely to make the financial statements appear more attractive to financial statement users.
  5. e The reduction in the per-unit price of an item if a certain quantity is purchased.

5 Multiple Choice Questions

  1. When a good or service is sold on credit, the selling company wishes to collect the cash as soon as possible. To encourage prompt payment, many companies offer cash discounts on the gross sales price. Cash discounts specify that an amount of cash less than the gross sales price is sufficient to satisfy the obligation.
  2. The process designed to safeguard cash from loss or theft.
  3. The percentage-of-credit- sales approach is a method of estimating bad debts that multiplies a given percentage by the credit sales of a given accounting period. Percentage-of-credit-sales is a common method of estimating uncollectibles, used in conjunction with the allowance method, when accounting for accounts receivable.
  4. Multinational corporations have their home in one country but operate and have subsidiaries operating within and under the laws of other countries.
  5. Current assets/Current liabilities. The current ratio is often used to assess a company's current asset management and its solvency position. It is normally an important part of financial statement analysis.

5 True/False Questions

  1. petty cashEscrow is the state of an item (e.g., cash) that has been put into the custody of a third party until certain conditions are fulfilled. Damage deposits on rental agreements, for example, are often held in escrow until the end of the rental period.

          

  2. aging scheduleAn open account is an informal credit trade agreement used in cases where frequent credit transactions are conducted and a running balance of the obligation or receivable is maintained. If payments are made regularly within reasonable time periods, interest charges are not usually assessed. Open account is normally used to describe the trade terms underlying accounts receivable and accounts payable.

          

  3. markdownEscrow is the state of an item (e.g., cash) that has been put into the custody of a third party until certain conditions are fulfilled. Damage deposits on rental agreements, for example, are often held in escrow until the end of the rental period.

          

  4. record controlThe procedures designed to ensure that the cash account on the balance sheet reflects the actual amount of cash in the company's possession.

          

  5. escrowEscrow is the state of an item (e.g., cash) that has been put into the custody of a third party until certain conditions are fulfilled. Damage deposits on rental agreements, for example, are often held in escrow until the end of the rental period.

          

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