loader  Loading... Please wait...

Question(s) / Instruction(s):

True  / False Questions
 

1. Accounts receivable occur from credit sales to customers. 

2. Credit sales are recorded by crediting an Accounts Receivable. 

3. As long as a company accurately records total credit sales information, it is not necessary to have separate accounts for specific customers. 

4. If a customer owes interest on accounts receivable, Interest Revenue is debited and Accounts Receivable is credited. 

5. If a credit card sale is made, the seller can either debit Cash or debit Accounts receivable at the time of the sale depending on the type of credit card. 

6. Installment accounts receivable are classified as current assets, even though the installment period is more than one year, if the seller regularly offers customers such terms.

7. Companies can report credit card expense as a discount deducted from sales or as a selling expense. 

8. TechCom's customer, RDA, paid off an $8,300 balance on its account receivable. TechCom should record the transaction as a debit to Accounts Receivable-RDA and a credit to Cash. 

9. The maturity date of a note refers to the date the note must be paid. 

10. A promissory note is a written promise to pay a specified amount of money either on demand or at a definite future date. 

11. The formula for computing interest on a note is principal of the note times the annual interest rate times time expressed in years. 

12. The person that borrows money and signs a promissory note is called the payee. 

13. A company borrowed $1,000 by signing a six month promissory note at 5% interest. The total amount of interest is $25. 

14. A company borrowed $6,000 by signing a 4-month promissory note at 12%. The total interest on the note is $720.  

15. Sellers generally prefer to receive notes receivable rather than accounts receivable when the credit period is long and the receivable is for a large amount. 

 16. Receivables can be used to obtain cash by either selling them or using them as security for a loan. 

 17. The process of using accounts receivable as security for a loan is known as factoring accounts receivable. 

 18. Since pledged accounts receivables only serve as collateral for a loan and are not sold, it is not necessary to disclose the pledging. 

 19. A company factored $35,000 of its accounts receivable and was charged a 2% factoring fee. The journal entry to record this transaction would include a debit to Cash of $35,000, a debit to Factoring Fee Expense of $700, and credit to Accounts Receivable of $35,700. 

20. The quality of receivables refers to the likelihood of collection without loss. 

21. The accounts receivable turnover indicates how often accounts receivable are received and collected during the period. 

22. A high accounts receivable turnover in comparison with competitors suggests that the firm should tighten its credit policy. 

23. The accounts receivable turnover is calculated by dividing net sales by average accounts receivable. 

24. A company had net sales of $500,000 and an average accounts receivable of $80,000. Its accounts receivable turnover equals 6.25. 

25. A Company had net sales of $23,000 million, and its average account receivables were $5,860 million. Its accounts receivable turnover is 0.92. 

26. The direct write-off method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible.

27. The matching principle requires use of the direct write-off method of accounting for bad debts. 

 28. Companies follow both the matching principle and the materiality constraint when applying the direct write-off method. 

 29. The use of an allowance for bad debts is required under the materiality constraint. 

 30. The advantage of the allowance method of accounting for bad debts is that it identifies the specific customers who will not pay their bills. 

 31. Companies use two methods to account for uncollectible accounts, the direct write-off method and the allowance method. 

 32. Under the allowance method of accounting for uncollectible accounts receivable, no attempt is made to predict bad debts expense. 

 33. The materiality constraint permits the use of the direct write-off method of accounting for uncollectible accounts when bad debts are very large in relation to a company's other financial statement items such as sales and net income. 

 34. When using the allowance method of accounting for uncollectible accounts, the entry to record the bad debts expense is a debit to Bad Debts Expense and a credit to Accounts Receivable. 

 35. After adjustment, the balance in the Allowance for Doubtful Accounts has the effect of reducing accounts receivable to its estimated realizable value. 

 36. When using the allowance method of accounting for uncollectible accounts, the entry to write off Harold's uncollectible account is a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable – Harold. 

 37. When using the allowance method of accounting for uncollectible accounts, the recovery of a bad debt would be recorded as a debit to Cash and a credit to Bad Debts Expense. 

 38. The aging of accounts receivable involves classifying each account receivable by how long it is past its due date and estimating the amount that is uncollectible. 

 39. Installment accounts receivable is another name for aging of accounts receivable. 

 40. The accounts receivable method to estimate bad debts obtains the estimated balance in the Allowance for Doubtful Accounts in one of two ways: (1) computing the percent uncollectible from the total accounts receivable or (2) aging accounts receivable. 

 41. The percent of sales method for estimating bad debts assumes that a given percent of a company's credit sales for the period are uncollectible. 

 42. The percent of accounts receivable method for bad debts estimation uses only income statement account balances to estimate bad debts. 

 43. The aging method of determining bad debts expense is based on the knowledge that the longer a receivable is past due, the lower the likelihood of collection. 

 44. A company has $90,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 6% of outstanding receivables are uncollectible. The current credit balance (before adjustments) in the allowance for doubtful accounts is $800. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for $7,000. 

45. A company has sales of $350,000 and estimates that 0.7% of its sales are uncollectible. The estimated amount of bad debts expense is $2,450. 

 46. The percent of sales method of estimating bad debts is focused more on realizable value of accounts receivable than matching. 

 47. When a company holds a large number of notes receivable it sometimes sets up a controlling account and a subsidiary ledger for notes. 

 48. Notes receivable are classified as current liabilities. 

 49. A company received a $1,000, 90-day, 10% note receivable. The journal entry to record receipt of the note includes a debit to Notes Receivable. 

 50. For legal reasons, it is always a good business practice to accept a note receivable in exchange for an overdue account receivable. 

 51. A payee of a note always honors a note and pays it in full. 

 52. A maker who dishonors a note is one who does not pay it at maturity. 

 53. A dishonored note receivable is usually reclassified as an account receivable. 

 54. The practice of placing dishonored notes receivable into accounts receivable keeps only notes that have not matured in the Notes Receivable account. 

55. The matching principle requires that accrued interest on outstanding notes receivable be recorded at the end of each accounting period.

Find Similar Answers by Subject


Student Reviews

Rate and review your solution! (Please rate on a Scale of 1 - 5. Top Rating is 5.)


Expert's Answer
Original Price:
$9.79
Download Solution:
$4.79 (You save $5.00)

This solution includes:

  • Plain text
  • Cited sources when necessary
  • Attached file(s)
  • Solution Document(s)

You Recently Viewed...



Reach Us

408-538-8534

20-3582-4059

39-008-4233

+1-408-904-6494