5.3 Learning Objective 5-3
1) The two major types of receivables are accounts receivable and trade receivables.
2) Accounts (trade) receivables are amounts to be collected from customers from the sale of goods or services.
3) Notes receivable from customers and vendors have a maturity date.
4) The general ledger has a separate account receivable for each customer.
5) By selling on credit, companies run the risk of not collecting some receivables.
6) With regard to Accounts Receivable, a separate account for each customer is kept in a(n):
A) control account.
B) subsidiary ledger.
C) general ledger.
D) control ledger.
7) The most important internal control over cash is to:
A) have all customers pay by check.
B) separate cash-handling duties from cash-accounting duties.
C) separate cash-handling from the mailroom.
D) have an imprest petty cash fund.
8) The category "Other Receivables" on the balance sheet includes:
A) Accounts Receivable, Interest Receivable.
B) Notes Receivable, Accounts Receivable, Interest Receivable.
C) Interest Receivable, Dividend Receivable, Advances to employees.
D) none of the above.
9) What is the benefit and cost of extending credit to customers?
Benefit Cost
A) Increased salesUncollectible-Account Expense
B) Increased profitsIncreased assets
C) Increased salesDecreased current ratio
D) More potential customersDecreased working capital
5.4 Learning Objective 5-4
1) Accounts receivable are reported on the balance sheet at their net realizable value.
2) Uncollectible-account expense is included in Cost of Goods Sold on the income statement.
3) Under the direct write-off method, the journal entry to record Uncollectible-Account Expense includes a credit to Accounts Receivable.
4) Under the allowance method, companies are prohibited from using different methods to estimate Uncollectible-Account Expense.
5) Following Generally Accepted Accounting Principles, two methods to estimate uncollectible accounts receivable are the direct write-off method and the allowance method.
6) Under the allowance method, Uncollectible-Account Expense is recorded in the same accounting period as the sale.
7) The Allowance for Uncollectible Accounts has a normal debit balance because it is an asset account.
8) The net realizable value of accounts receivable is the difference between gross accounts receivable and:
A) Sales Discounts.
B) Sales Returns and Allowances.
C) Uncollectible-Account Expense.
D) Allowance for Uncollectible Accounts.
9) When evaluating the collectability of accounts receivable:
A) the Uncollectible-Account Expense is a contra account.
B) the Allowance for Uncollectible Accounts is an operating expense in the selling, general and administrative category.
C) the allowance method uses estimates developed from the company's collection experience.
D) the direct write-off method uses the Allowance for Uncollectible Accounts to record bad debts.
10) The aging-of-receivables method of estimating uncollectible accounts is:
A) not an acceptable method of estimating bad debts.
B) a balance sheet approach, since it focuses on accounts receivable.
C) an income statement approach, since it focuses on the amount of expense to be reported on the income statement.
D) not concerned with the balance in the Allowance for Doubtful Accounts.