#1
Which of the following is an example of accounts receivable?
Amount owed by customers for goods sold on credit
ExplanationMoney owed by customers for goods or services provided on credit terms.
#2
What is the usual term for the length of time that receivables are outstanding?
Collection period
ExplanationThe time it takes for a company to collect payment for its sales.
#3
What is the term used for the process of converting accounts receivable into cash?
Collection
ExplanationThe process of receiving payments from customers for goods or services provided.
#4
What is the term used for the sale of accounts receivable to a third party at a discount?
Factoring
ExplanationThe process of selling accounts receivable to a third party at a discount.
#5
Which method is used to estimate uncollectible accounts under the allowance method?
Aging of accounts receivable
ExplanationA technique that categorizes accounts based on their age to estimate collectibility.
#6
Under the direct write-off method, when is an account considered uncollectible?
When it is determined to be uncollectible
ExplanationAn account is written off when it is deemed uncollectible.
#7
What is the formula to calculate the accounts receivable turnover ratio?
Net Credit Sales / Average Accounts Receivable
ExplanationA measure of how efficiently a company manages its receivables.
#8
Which of the following is an indicator of the efficiency of a company's credit policies?
Accounts Receivable Turnover Ratio
ExplanationA measure of how many times a company's receivables are collected and replaced in a given period.
#9
Which of the following is NOT an advantage of factoring receivables?
Increasing accounts receivable turnover ratio
ExplanationFactoring receivables typically decreases accounts receivable turnover ratio.
#10
Which of the following is a contra-asset account related to accounts receivable?
Accumulated Depreciation
ExplanationA contra-asset account representing the accumulated depreciation of assets.
#11
Which financial statement reflects the estimated amount of uncollectible accounts?
Balance sheet
ExplanationA financial statement showing a company's assets, liabilities, and equity.
#12
Under the allowance method, where are estimated uncollectible accounts recorded initially?
Balance Sheet
ExplanationA financial statement showing a company's financial position at a specific point in time.
#13
What is the effect of a decrease in the allowance for doubtful accounts on the financial statements?
Increases net income
ExplanationA decrease in the allowance for doubtful accounts increases net income.
#14
How does the recognition of uncollectible accounts under the direct write-off method affect the income statement?
Decreases net income
ExplanationRecognition of uncollectible accounts reduces revenues and net income.
#15
What is the formula for calculating the allowance for doubtful accounts under the percentage of sales method?
Total Credit Sales * Percentage Uncollectible
ExplanationA method of estimating the allowance for doubtful accounts based on a percentage of credit sales.
#16
Which of the following is a disadvantage of using the direct write-off method for accounting for bad debts?
It violates the matching principle
ExplanationThe direct write-off method may not match expenses with revenues in the period they are earned, violating the matching principle.