5 Written questions
5 Matching questions
- physical control
- record control
- current assets
- percentage-of-credit-sales approach
- cash discount
- a The procedures designed to ensure that the cash account on the balance sheet reflects the actual amount of cash in the company's possession.
- b The process designed to safeguard cash from loss or theft.
- c Current assets are assets on the balance sheet expected to be converted to cash or expired in one year or the operating cycle, whichever is longer.
- d 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.
- e 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.
5 Multiple choice questions
- (Cash + Marketable Securities accounts Receivable)/Current liabilities. The quick ratio compares a company's highly liquid assets to its current liabilities, providing a measure of the portion of the current liabilities that could be paid off in the near future.
- An 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.
- 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.
- Initially recognize the full sales price (gross) and later discount the gross.
- The reduction in the per-unit price of an item if a certain quantity is purchased.
5 True/False questions
exchange rate loss → A decrease in value due to changes in the exchange rate.
window dressing → Hedging is a strategy used by management to reduce the risk associated with fluctuations in the values of assets and liabilities.
operating cycle → Compensating balances are minimum cash balances that must be maintained in savings or checking accounts until certain loan obligations are satisfied. Compensating balances help financial institutions reduce the risks of default on outstanding loans by ensuring that at least some cash is available for scheduled loan payments.
accounts receivable → Accounts receivable is a balance sheet account indicating the dollar amount due from customers from sales made on open account. It arises when revenues are recognized before receipt of the associated cash payment. Accounts receivable is normally included as a current asset and for some companies can be quite large.
aging schedule → An 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.