Upgrade to remove ads
Only $35.99/year

Chapter 6 (A-304)

Terms in this set (40)

Companies may use which of the following to motivate sales and collections? (Select all that apply.)
- Allow customers to purchase on credit
- Sell merchandise FOB shipping point
- Allow customers to pay in advance
- Provide discounts for early collection
- Allow customers to purchase on credit
- Provide discounts for early collection
Accepting only cash and canceling a credit card program that previously allowed customers to purchase merchandise on credit may cause Blank______. (Check all that apply.)
- sales to decrease
- sales to increase
- wage expense to increase
- a decrease in customer traffic
- sales to decrease
- a decrease in customer traffic
When an entry is recorded with a debit to Accounts Receivable and credit to Sales Revenue, then the sale was a(n) Blank______ sale.
credit
Sales discounts should appear in the financial statements as a(n) Blank______.
deduction from sales
Offering customers Blank______ increases the likelihood the seller will receive the cash before the customer runs out of funds and encourages prompt payment.
sales discounts
Allowing credit cards, returns or discounts for early payment affects the recording of Blank______.
net sales revenue
Although there are some clear disadvantages associated with extending credit to customers, such as bad debt costs, most managers believe a particular advantage outweighs the costs. To which primary advantage do they refer?
Additional sales revenue
When merchandise is returned for a refund or for credit to be applied to other purchases, the account called Sales ____ and ____ is debited.
Returns & Allowances
Sales to customers in which the customers pay within 30 days are referred to as Blank______. (Check all that apply.)
- sales on account
- credit sales
What does the sales discount 1/7, n/30 mean?
You can take a 1% discount if you pay within 7 days, or the full amount is due within 30 days
On the income statement, Sales revenue less Credit card discounts less Sales discounts less Sales returns and allowances equals the line item called ______ _______?
- Net
- Sales
Identify two benefits to the seller of offering sales discounts to its customers.
- prompt receipt of cash
- increases the likelihood the seller will receive the cash before the customer runs out of funds
True or false: Net sales is the same as net income and is reported on the income statement
False (Net sales is the first line of the income statement above expenses. Net income is net of all expenses.)
What conclusion are managers likely to draw from a constant increase to sales returns and allowances?
Customers are unhappy with the quality of the merchandise.
When a business sells goods to a customer, and the customer promises to pay later, this is referred to as Blank______ sales.
Credit
Since accounting numbers, such as the allowance for doubtful accounts balance, are based on ________, financial statements are susceptible to management manipulation.
estimates
During the month, Cellum, Inc. sold 100 cells at a price of $100 each. Each cell was sold at a 1% sales discount. Cellum had returns of $198 (net of discounts) and incurred bank service charges of $20. Net sales for the month ended equals $_____
$9,702
(100 x 100) - (10,000 x .01) - 198
the 20 is an expense
Which of the following are contra-asset accounts?
- Accumulated depreciation
- Allowance for doubtful accounts
Net sales is reported on the _____
first line of the income statement
During the year, ABC Corp. realizes that a particular customer will never pay. What action should ABC take?
Write off the uncollectible account and its corresponding allowance from the accounting records.
Ace Electronics recorded a debit to Sales Returns and Allowances and a credit to Accounts Receivable, along with a debit to Inventory and a credit to Cost of Goods Sold. What business event must have taken place?
the customer received a damaged product and returned it
When the allowance method is used, the write-off of an uncollectible account Blank______.
has no effect on net income
The challenge businesses face when estimating the allowance for doubtful accounts is that Blank______.
at the time of the sale, it is not known which particular customer will be a "bad" customer
Select all of the following that are properly defined.
- Allowance for Doubtful Accounts is the amount of receivables estimated to be uncollectible.
- Accounts Receivable (Gross) includes both collectible and uncollectible receivables.
- Accounts Receivable (Net) is the net realizable value.
- Accounts Receivable (Net) reports the amount of receivables expected to be collected.
- Accounts Receivable (Gross) includes only the collectible receivables.
- Allowance for Doubtful Accounts is the amount of receivables estimated to be uncollectible.
- Accounts Receivable (Gross) includes both collectible and uncollectible receivables.
- Accounts Receivable (Net) is the net realizable value.
- Accounts Receivable (Net) reports the amount of receivables expected to be collected.
On the income statement, Sales revenue less Credit card discounts less Sales discounts less Sales returns and allowances equals the line item called ______ _____.
Net Sales
The Allowance for Doubtful Accounts is a contra-asset account. Increases to the account (to record the period's estimated bad debt expense) are recorded with
credits
An analyst sees the line item Accounts receivable, net of allowances of $2,040,000, with a balance of $19,500,000. Which of the following statements is correct?
- $2,040,000 is the amount estimated to be uncollectible
- $19,500,000 is the expected amount to be collected from customers
- $21,540,000 is the gross receivables
Accounts receivable has a $2,300 balance, and the Allowance for doubtful accounts has a $200 credit balance. An $80 account receivable is written off. The net book value of receivables on the balance sheet after the write-off equals Blank______.
$2,100
Net receivables = ($2,300 - 80) - (200 - 80) = $2,100
Accounts receivable, net on the balance sheet refers to Blank______.
Accounts Receivable minus the Allowance for Uncollectible Accounts
Delectable, Inc.'s unadjusted trial balance includes Accounts receivable of $10,000; Allowance for doubtful accounts as a $50 credit balance; and Credit sales of $100,000. Based on an aging of its receivable, management estimates that $1,000 of receivables will be uncollectible. Delectable's financial statements will show Blank______. (Check all that apply.)
- Bad Debt Expense of $950
- Allowance for Doubtful Accounts of $1,000
A contra-asset account, such as Allowance for Doubtful Accounts or Accumulated Depreciation, has a normal balance of a Blank______ and causes total assets to Blank______.
Multiple choice question.
credit; decrease
A contra-asset account has normal balance of a credit and cause assets to decrease.
- Amount earned during the accounting period
- Amount not yet collected from customers at the end of the accounting period
- Cash collected during the accounting period
* Income Statement
* Balance Sheet
* Statement of Cash Flows
- Income Statement
- Balance Sheet
- Statement of Cash Flows
The line item Accounts receivable, net of allowances will be found on the _____
Balance Sheet
Short-term highly liquid investments with a maturity of ______ months or less that can be readily converted to cash with little risk of loss are classified as cash equivalents.
three
ABC, Inc.'s unadjusted trial balance included Accounts receivable of $80,000; Allowance for doubtful accounts as a $750 credit balance; and Credit sales of $400,000. ABC uses the aging-of-receivables method and estimates that $8,000 of its receivables will be uncollectible. After the adjusting entry is made, ABC's financial statements will report
- Allowance for doubtful accounts of $8,000 on the balance sheet.
- Bad debt expense of $7,250 on the income statement.
If the accounts receivable balance increased then cash collected from customers was ______ the sales for the accounting period.
Multiple choice question.
- 9,500,000 is the expected amount to be collected from customers
- $2,040,000 is the amount estimated to be uncollectible
- $21,540,000 is the gross receivables
Short-term, highly liquid investments such as money market funds or treasury bills are classified as ______.
Cash Equivalents
Using the aging approach, management estimates that $1,000 of Accounts Receivable will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted credit balance. The adjusting entry to record estimated bad debts includes a _______.
- debit to Bad Debt Expense of $900
- credit to Allowance for Doubtful Accounts of $900
(Allowance for Doubtful Accounts balance of $1,000 (=$10,000 x 10%), only $900 (=$1,000 minus the $100 credit unadjusted balance) needs to be credited to the Allowance account since there is already a $100 credit unadjusted balance in it. debit to Bad Debt Expense (+E,-SE) of $900 and a credit to Allowance for Doubtful Accounts (+xA,-A) of $900. The Allowance (a permanent account) on the balance sheet is $100 more because of the $100 unadjusted credit balance carried forward from the prior period's uncollectible credit sales.)
An analyst sees the line item Accounts receivable, net of allowances of $2,040,000, with a balance of $19,500,000.
- $21,540,000 is the gross receivables
- $19,500,000 is the expected amount to be collected from customers
- $2,040,000 is the amount estimated to be uncollectible
Using the aging approach, management estimates that $1,000 of accounts receivable will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted debit balance. The Allowance for Doubtful Accounts on the balance sheet will equal _____.
$1000
Other sets by this creator