Accounts Receivable Test

Accounts Receivable Test

Which of the following will not improve the current ratio?

a. Issuing long-term debt to purchase inventory

b. Obtaining a short term loan to finance additional fixed assets

c. Selling common stock to reduce current liabilities.

d. Selling fixed assets to reduce accounts payable

Why must companies actively manage their outstanding receivables?

a. It is part of the job of any accounting department

b. Customers will never pay if they are not constantly reminded of the money due

c. Managing receivables makes cash flow into the company quicker than it would if no attention is paid to AR

d. Companies need to be prompt in replying to customer requests

On a company's Balance Sheet, A/R is the amount_____________.

a. that the company owes to a particular party

b. that a party owes to the company

c. not shown in the balance sheet

A company recorded two sales of $20.000 and $30,000 on March 1, 2007 under the credit terms of 3/10, n/30. Payment for the $20,000 sale was received on March 10, 2007. Payment for the $30,000 sale was received on March 25, 2007.
Under the gross method and the net method, which of the following amounts should appear as net sales in the March income statements?
Gross method Net method

a. $48,500 $48,500

b. $48,500 $49,400

c. $49,400 $48,500

d. $49,400 $49,400

To which column should Sales Discount be extended (transferred) on the work sheet?

a. Income statement credit column

b. Balance sheet debit column

c. Income statement debit column

d. Balance sheet credit column

What is B2B?

a. A CRM software package

b. Best Business

c. An Accounting Software

d. Business to Business

The antecedents of receivables are critical to the management of receivable assets and is the key driver of the cost to manage a company's revenue stream. A simple formula to illustrate this point is ____________.

a. high customer satisfaction – accurate invoice = excellent receivable results

b. high customer satisfaction + excellent receivable results = accurate invoice

c. high customer satisfaction + accurate invoice = excellent receivable results

d. None of the above

A company would choose to factor it's receivables because:

a. it is the same as turning them over to a collection agency

b. they need to raise capital and do not want to rely on the credit worthiness of the business

c. they have given up hope of ever collecting on the items

d. it is easier than trying to collect themselves

Why would a company break revenue up into specific accounts instead of having one master "revenue" account?

a. Once a company chooses a method, it is never changed. Someone early on made a mistake by creating the level of detail

b. It allows the management and the staff to examine and analyze each of the revenue streams for errors, patterns, and comparisons

c. It creates work for the accounting department

d. It is required by tax laws

The antecedents of Receivables are defined as all the up-front operations required for creating a receivable. They do not involve which of the following:

a. Quotations

b. Advance payments

c. Contract and price administration

d. Invoicing

Credit card discounts are reported on the income statement as

a. a contra revenue

b. a selling expense

c. a miscellaneous expense

d. both (a) and (c)

ABC Services provides accounting services to a client and collects $1,000 in cash. How and in which of the accounts will the increase in cash be recorded by ABC Services as a result of providing this service?

a. A credit to Accounts Receivable

b. A debit to Accounts Receivable

c. A credit to Service Revenue

d. A debit to Service Revenue’

Is the Accounts Receivable department considered "revenue generating"?

a. Yes, it is the connection between the company and the customer

b. Yes, as AR handles all payments, it handles the revenue in the true sense

c. Yes, without an AR department, no revenue would be collected

d. No, it is part of the accounting operation function and is an overhead expense

You received an invoice that shows credit terms of 2/10, n/60. What does the number 10 in the credit terms refer to?

a. The number of days in the credit period.

b. The amount of sales discount available.

c. The number of days in the discount period.

d. The amount of the trade discount.

What is meant by Factoring?

a. sale of Accounts Receivables

b. Bank Loan

c. Discount

d. None of the above

An invoice is____________.

a. a commercial document issued by the seller to the buyer

b. a commercial document issued by the buyer to the seller

c. a commercial document issued by the buyer to the contractor

On the balance sheet, Receivables may be classified as ____________.

a. trade and non-trade

b. current and non-current

c. trade and current only

d. both (a) and (b)

Which of the following is not true about interest on Receivables?

a. Interest receivable is calculated by using the formula Interest= Principal x Interest Rate x Time.

b. Interest receivable does not have to be recognized if interest is to be collected in the next year

c. We need to recognize interest receivable to satisfy the matching principle.

d. Interest receivable is interest earned but not collected.

Ninety-percent of Vogel Bird Seeds' total sales of $600,000 is on credit. If its year-end Receivables turnover is 5, the average collection period (based on a 365-day year) and the year-end Receivables are, respectively

a. 365 days and $108,000

b. 73 days and $120,000

c. 73 days and $108,000

d. 81 days and $108,000

The net realizable value of Accounts Receivable is____________.

a. the total of the Individual accounts in the subsidiary ledger

b. Accounts Receivable minus allowance for Doubtful Accounts

c. Accounts Receivable minus Bad Debts Expense

d. the estimated amount of the accounts that will not be collected

Where should Sales Discount be recorded?

a. Income statement credit column

b. Balance sheet debit column

c. Income statement debit column

d. Balance sheet credit column

Costs that does not carry enough inventory include____________.

a. lost sales

b. customer disappointment

c. possible worker layoffs

d. All of the above

Bad Debts are shown on the following financial statements ____________.

a. the Profit & Loss

b. the Profit & Loss & the Balance Sheet

c. the Balance Sheet and Statement of Equity

d. Cash Flow statement

Allowance for doubtful accounts is ___________.

a. the total of the accounts that will not be collected

b. a contingent liability

c. a contra-owner's equity account like withdrawals

d. the estimated amount of Accounts Receivable that will not be collected

Why is "day's sales in Accounts Receivable" important to calculate?

a. It tells you the total day's sales that were made

b. It is required by the SEC for all public companies

c. It indicates the company's overall financial health

d. It makes comparison with prior results possible to see improvements or non improvements, and lets a company know how long people are taking to pay on average

A firm receives cash for 30% of its sales with the remaining 70% being credit sales. Of the credit sales, 20% are collected in the month of the sale, 60% in the month following the sale, and 20% in the second month following the sale. The anticipated sales for January through April are $400,000, $500,000, $600,000, and $400,000 respectively. What will be the cash receipts in the month of April?

a. $120,000

b. $400,000

c. $498,000

d. $530,000

A company's accounting policy for recording revenues___________.

a. must be the same as that of all other companies

b. can be different from that of other companies

c. must be disclosed if different from the revenue principle

d. can be (b), and if so, (c) must follow

Why would a service item be kept in inventory in the accounting system?

a. It would not; service is not an inventory item

b. It allows for associating a standard price with the service item and makes invoicing easier

c. It assigns a value to the services of the company for the balance sheet

All of the following are true about interest receivable except

a. Interest Receivable is calculated by using the formula Interest= Principal x Interest Rate x Time

b. Interest Receivable is interest earned but not collected

c. Interest Receivable does not have to be recognized if interest will be collected in the next year

d. We need to recognize Interest Receivable to satisfy the matching principle

Factoring Receivables is a ___________.

a. continuous, ongoing purchase of Receivables

b. finite portfolio of Receivables

c. limited purchase of Receivables

d. continuous, ongoing selling of Receivables

Companies that do not carry enough inventory will incur ____________.

a. lost sales

b. low employee morale

c. worker layoffs

d. All of the above

A transfer of financial assets in accordance with SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities may be treated as a sale if the transferor surrenders control of the assets. Which of the following is one of the criteria that must be met before control is deemed to be surrendered?

a. The transferred assets are isolated from the transferor and its creditors expected in bankruptcy.

b. The transferee cannot pledge or exchange the transferred assets.

c. The transferor is not a party to an agreement that both entitles and obligates it to repurchase or redeem the securities prior to maturity.

d. The consideration received by the transferor consists solely of beneficial interests in the transferred assets.

On January 1, Davis College assigned $500,000 of Accounts Receivable to the Scholastic Finance Company. It gave a 14% note for $450,000 representing 90% of the assigned accounts and received proceeds of $432,000 after deduction of a Scholastic, including interest for 1 month on the remittance. By what amount will Accounts Receivable be assigned and notes payable decreased?
A/R Assigned Notes Payable

a. $80,000 $74,750

b. $80,000 $80,000

c. $72,000 $74,750

d. $74,750 $80,000

If the balance of the Allowance for Doubtful Account exceeds the amount of a bad debt being written off, the entry to record the write off against the allowance account results in:

a. an increase in the expenses of the current period

b. a reduction in current assets

c. a reduction in equity

d. no effect on the expenses of the current period

Accounts Receivable that arise from the regular sale of merchandise is also referred to as___________.

a. Business Receivables

b. Other Receivables

c. Trade Receivables

d. Money Receivable

An accrued revenue would be shown on the balance sheet as ____________.

a. a payable

b. a prepaid revenue

c. a receivable

d. unearned revenue

Which of the following statements regarding the calculation of 'day's sales' in receivables is incorrect?

a. Allowance for doubtful accounts is generally not considered in the formula for 'day's sales'

b. This formula must be applied in two steps.

c. The number of 'day's sales' in Accounts Receivable is always 365.

d. Net sales are not used in the calculation of 'day's sales' in Accounts Receivable.

When using the indirect method of preparing the "Cash Flows from Operating Activities" section of a statement of cash flows, a net increase between the opening and closing balances of Net Accounts Receivable will ____________.

a. be added to net income

b. be deducted from net income

c. not be considered

d. be shown as deferred revenues

To which accounting concept does Accounts Receivable relate?

a. Going concern

b. Cost concept

c. Matching concepts

d. Consistency concept

In accounting for the transfer of financial assets, which of the following is the approach underlying the accounting prescribed by SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities?

a. Financial-components approach.

b. The risks-and-rewards approach.

c. Inseparable-unit approach.

d. Linked-presentation approach.