Deck 8: Reporting and Analyzing Receivables

Question 1

A receivable is recognized regardless of collection risk.

Answer 1

False

Question 2

Both accounts receivable and notes receivable represent claims that are expected to be collected in cash.

Answer 2

True

Question 3

Uncollectible accounts must be estimated because it is not possible to know which accounts will not be collected.

Answer 3

True

Question 4

Under the allowance method for uncollectible accounts, bad debts expense is not recorded until a customer defaults.

Question 5

The two accounting problems with accounts receivable are: (1) recognizing and (2) disposing.

Question 6

A receivable is recognized when the sales effort is substantially complete.

Question 7

Receivables are considered to be financial assets.

Question 8

An aging of accounts receivable schedule is based on the premise that the longer the period an account remains unpaid, the greater the probability that it will eventually be collected.

Question 9

Under the allowance method for uncollectible accounts, the entry to write off an uncollectible account only involves statement of financial position accounts.

Question 10

Interest revenue is never earned on accounts receivable.

Question 11

If a company such as Sears sponsors its own credit card, when customers use their Sears card the sale is recorded as a cash sale.

Question 12

Trade receivables can be accounts receivable or notes receivable.

Question 13

Accounts receivable can be the result of either cash or credit sales.

Question 14

Advances to employees are a type of accounts receivable.

Question 15

Trade receivables occur when two companies trade or exchange notes receivables.

Question 16

When posting is up-to-date, the balance in the accounts receivable subsidiary ledger must equal the balance in the general ledger.

Question 17

Other receivables include nontrade receivables such as loans to company officers.

Question 18

The percentage of receivables basis of estimating uncollectible accounts ignores the existing balance in the allowance account when the bad debts adjusting entry is recorded.

Question 19

When a subsidiary ledger and a control account are used, each journal entry that affects accounts receivable must be posted twice.

Question 20

A subsidiary ledger is a group of accounts that provides details about a control account in the general ledger.

Question 21

Receivables are generally valued and reported in the statement of financial position at their gross amount less the allowance for doubtful accounts.

Question 22

A note receivable is a written promise by the maker to the payee to pay a specified amount of money at a definite time.

Question 23

Under the allowance method for uncollectible accounts, the net realizable value of receivables is the same both before and after an account that had previously been written off is recovered.

Question 24

Under the aging method of estimating the allowance for doubtful accounts, the balance in the allowance account must be considered prior to adjusting for estimated uncollectible accounts.

Question 25

Under the allowance method for uncollectible accounts, the net realizable value of receivables is the same both before and after an account has been written off.

Question 26

A dishonoured note is a note that is not paid in full at maturity.

Question 27

Allowance for Doubtful Accounts is a contra account that is deducted from Accounts Receivable on the statement of financial position.

Question 28

It is possible for the allowance account to have a debit balance before the year end adjusting entry is recorded.

Question 29

Under the allowance method for uncollectible accounts, Bad Debts Expense is debited when an account is deemed uncollectible and must be written off.

Question 30

The maker of a promissory note is the party to whom the payment is to be made.

Question 31

Bad Debts Expense is a contra account to the Sales account.

Question 32

The two key parties to a note are the maker and the payee.

Question 33

Uncollectible notes receivable should be estimated at year end and recorded as a debit to Bad Debts Expense and a credit to Notes Receivable.

Question 34

Only the net amount of receivables needs to be reported in the statement of financial position.

Question 35

Net realizable value is determined by adding the Allowance for Doubtful Accounts to Accounts Receivable.

Question 36

The Allowance for Doubtful Accounts is a liability account.

Question 37

Allowance for Doubtful Accounts is credited when an account is determined to be uncollectible.

Question 38

Interest on a 3-month, 3%, $20,000 note is calculated by multiplying $20,000 * 3% * 3.

Question 39

Under the allowance method for uncollectible accounts, the recovery of an account receivable previously written off results in a credit to the Bad Debt Expense account.

Question 40

When the due date of a note is stated in months, the time factor in calculating interest, if it is due monthly, is the number of months divided by 12.

Question 41

The term "receivables" refers to
(a)amounts due from individuals or companies.
(b)merchandise to be collected from individuals or companies.
(c)cash to be paid to creditors.
(d)cash to be paid to debtors.

Question 42

The journal entry to record a credit card sale using a nonbank credit card (e.g., Canadian Tire or Sears) includes a debit to the
(a)Cash account.
(b)Accounts Receivable account.
(c)Debit Card Expense account.
(d)Sales account.

Question 43

The receivables turnover should be analyzed in conjunction with other ratios such as the current ratio and inventory turnover.

Question 44

The receivables turnover ratio is calculated by dividing gross credit sales by the average net receivables during the year.

Question 45

A critical part of managing receivables is determining who should be extended credit and who should not.

Question 46

Which of the following receivables would not be classified as an "other receivable"?
(a)Advance to an employee
(b)Refundable income tax
(c)Notes receivable
(d)Interest receivable

Question 47

The receivable that is usually evidenced by a formal instrument of credit is a(n)
(a)trade receivable.
(b)note receivable.
(c)account receivable.
(d)income tax receivable.

Question 48

Accounts receivable may be transferred to investors in return for cash through a process called securitization.

Question 49

Which one of the following is not an accounting issue associated with accounts receivable?
(a)Depreciating accounts receivable
(b)Recognizing accounts receivable
(c)Valuing accounts receivable
(d)Estimating the amount collectible

Question 50

Both Bad Debts Expense and Interest Revenue are reported as operating expenses in the income statement.

Question 51

The account Allowance for Doubtful Accounts is necessary because
(a)when recording bad debts expense, it is not possible to know which specific accounts will not pay.
(b)uncollectible accounts that are written off must be accumulated in a separate account.
(c)a liability results when a credit sale is made.
(d)management needs to accumulate all the credit losses over the years.

Question 52

The average collection period is frequently used to assess the effectiveness of a company's credit and collection policies.

Question 53

Under the allowance method for uncollectible accounts, writing off an uncollectible account
(a)affects only statement of financial position accounts.
(b)affects both statement of financial position and income statement accounts.
(c)affects only income statement accounts.
(d)affects either statement of financial position or income statement accounts.

Question 54

A factor is a finance company or bank that buys receivables from businesses for a fee.

Question 55

To find the balance due from an individual customer, the accountant would refer to the
(a)General Journal.
(b)Sales account in the general ledger.
(c)Accounts Receivable subsidiary ledger.
(d)Accounts Receivable account in the general ledger.

Question 56

The account Allowance for Doubtful Accounts is classified as a(n)
(a)liability.
(b)contra account to Bad Debts Expense.
(c)expense.
(d)contra account to Accounts Receivable.

Question 57

Notes or accounts receivables that result from sales transactions are often called
(a)sales receivables.
(b)non-trade receivables.
(c)trade receivables.
(d)merchandise receivables.

Question 58

Two accounting issues associated with accounts receivable are
(a)valuing and selling.
(b)depreciating and collecting.
(c)recognizing and valuing.
(d)recognizing and accelerating collections.

Question 59

Under the allowance method for uncollectible accounts, Bad Debts Expense is recorded
(a)when an individual account is written off.
(b)when the amount of loss is known.
(c)for an amount that the company estimates it will not collect.
(d)several times during the accounting period..

Question 60

Accounts receivable are valued and reported on the statement of financial position
(a)in the non-current asset section.
(b)at the gross amount less sales returns and allowances.
(c)at net realizable value.
(d)only if they are not past due.

Question 61

Under the allowance method for uncollectible accounts, Bad Debts Expense is recorded
(a)in the year after the credit sale is made.
(b)in the same year as the credit sale.
(c)as each credit sale is made.
(d)when an account is written off as uncollectible.

Question 62

Estimated uncollectibles are recorded as a debit to
(a)Allowance for Doubtful Accounts.
(b)Bad Debts Expense.
(c)Sales.
(d)Accounts Receivable.

Question 63

To record estimated uncollectible accounts using the allowance method, the adjusting entry would be a debit to
(a)Accounts Receivable and a credit to Allowance for Doubtful Accounts.
(b)Bad Debts Expense and a credit to Allowance for Doubtful Accounts.
(c)Allowance for Doubtful Accounts and a credit to Accounts Receivable.
(d)Bad Debts Expense and a credit to Accounts Receivable.

Question 64

When the allowance method is used to account for uncollectible accounts, Bad Debts Expense is debited when
(a)a sale is made.
(b)an account becomes uncollectible and is written off.
(c)management estimates the amount of uncollectible accounts.
(d)a customer's account becomes past due.

Question 65

A debit balance in the Allowance for Doubtful Accounts
(a)is the normal balance for that account.
(b)indicates that actual bad debt write-offs are higher than previous provisions for bad debts.
(c)indicates that actual bad debt write-offs have been less than what was estimated.
(d)cannot occur if the percentage of receivables method of estimating bad debts is used.

Question 66

The collection of an account that had been previously written off under the allowance method for uncollectible accounts
(a)increases profit in the period of collection.
(b)involves a credit to Bad Debt Expense.
(c)will usually require two journal entries.
(d)is recorded by debiting Cash and crediting Bad Debt Expense.

Question 67

The net amount expected to be received in cash from receivables is termed the
(a)net realizable value.
(b)fair value.
(c)gross cash value.
(d)cash-equivalent value.

Question 68

The collection of an account that had been previously written off under the allowance method for uncollectible accounts
(a)will increase profit in the period it is collected.
(b)will decrease profit in the period it is collected.
(c)requires a correcting entry for the period in which the account was written off.
(d)does not affect profit in the period it is collected.

Question 69

Under the allowance method of accounting for uncollectible accounts, Bad Debts Expense is debited
(a)when a credit sale is past due.
(b)at the end of each accounting period.
(c)whenever a pre-determined amount of credit sales have been made.
(d)when an account is determined to be uncollectible.

Question 70

Allowance for Doubtful Accounts on the statement of financial position
(a)is included in current liabilities.
(b)increases the net realizable value of accounts receivable.
(c)appears under the heading "Other Assets."
(d)is deducted from accounts receivable.

Question 71

An aging of a company's accounts receivable indicates that $6,500 is estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,200 credit balance, the adjustment to record bad debts for the period will require a
(a)debit to Bad Debts Expense for $6,500.
(b)debit to Allowance for Doubtful Accounts for $5,300.
(c)debit to Bad Debts Expense for $5,300.
(d)credit to Allowance for Doubtful Accounts for $7,700.

Question 72

The Allowance for Doubtful Accounts is shown under
(a)Expenses on the income statement.
(b)Revenue on the income statement.
(c)Current Liabilities on the statement of financial position.
(d)Current Assets on the statement of financial position.

Question 73

When an account becomes uncollectible and must be written off
(a)Allowance for Doubtful Accounts should be credited.
(b)Accounts Receivable should be credited.
(c)Bad Debts Expense should be credited.
(d)Sales should be debited.

Question 74

Bad Debts Expense is reported on the income statement as
(a)part of cost of goods sold.
(b)an expense subtracted from gross sales to determine net sales.
(c)an operating expense.
(d)a non-operating expense.

Question 75

Bad Debts Expense is considered
(a)an avoidable cost in doing business on a credit basis.
(b)an internal control weakness.
(c)a necessary risk of doing business on a credit basis.
(d)avoidable unless there is a recession.

Question 76

If a company fails to record estimated bad debts expense, then
(a)net realizable value is understated.
(b)expenses are understated.
(c)revenues are understated.
(d)receivables are understated.

Question 77

Under the allowance method for uncollectible accounts
(a)the net realizable value of accounts receivable is greater before an account is written off than after it is written off.
(b)Bad Debts Expense is debited when a specific account is written off as uncollectible.
(c)the net realizable value of accounts receivable in the statement of financial position is the same before and after an account is written off.
(d)Allowance for Doubtful Accounts is closed each year to Income Summary.

Question 78

If the amount of bad debts expense is understated at year end, then
(a)profit will be understated.
(b)shareholders' equity will be understated.
(c)Allowance for Doubtful Accounts will be overstated.
(d)net Accounts Receivable will be overstated.

Question 79

Writing off an uncollectible account involves
(a)a debit to Bad Debts Expense.
(b)a debit to Allowance for Doubtful accounts.
(c)a debit to Sales Returns and Allowances.
(d)a debit to Accounts Receivable.

Question 80

The balance in Allowance for Doubtful Accounts would have a debit balance when
(a)the percentage of receivables basis is used.
(b)an uncollectible account is later recovered.
(c)write-offs during the year have been less than previous provisions.
(d)write-offs during the year have exceeded previous provisions.