ACC 131 exam 2

Question 1

aging method

Answer 1

-estimate an uncollectible % amount for each category

-calculate the estimated uncollectible $ amount for each category

-add up across categories to calculate the total $ amount estimated to be uncollectible

Question 2

bad debt

Answer 2

debt that can’t be collected

Question 3

accounts receivable

Answer 3

amount the customer owes to the company

Question 4

default

Answer 4

a customer fails to pay off debt

Question 5

uncollectible amount

Answer 5

when a company determines how much a customer will not pay back

Question 6

write off

Answer 6

A company will remove the accounts receivable for an uncollectible amount

Question 7

net realizable value

Answer 7

the amount a company expects to collect for cash

Question 8

bank reconciliation

Answer 8

the difference between cash balance on the bank side and the cash balance on the bank side

Question 9

credit memo

Answer 9

-increases the account
-amounts collected on behalf of the company by the bank

Question 10

debit memo

Answer 10

-decrease the account
-auto payments and bank fees charged

Question 11

NSF checks

Answer 11

not having the funds to pay for a check

Question 12

deposit in transit

Answer 12

company sends cash to bank but the bank hasn’t processed it yet

Question 13

outstanding checks

Answer 13

checks not yet cleared by the bank

Question 14

components of internal control

Answer 14

-control environment
-strategic risks
-business process risks
-control activities
-information/communication
-monitoring

Question 15

internal control activities

Answer 15

-authority/responsibility
-segregation of duties
-documents/records
-safeguard assets/records
-checks on recorded amounts
-human resources controls

Question 16

direct-write off method

Answer 16

-businesses wait until debt is uncollectible, bad debt expense debit, accounts receivable credit

Question 17

direct-write off issues

Answer 17

violates matching principle

Question 18

allowance method

Answer 18

-allowance for doubtful accounts
-contra-asset
-estimate of amount owed that company doesn’t expect to collect
-bad debt expense credit
-allowance for doubtful accounts credit
-balance sheet under accounts receivable

Question 19

%credit sales

Answer 19

dividing net credit sales by total sales for the period

Question 20

allowance for doubtful accounts

Answer 20

-contra asset
-reduces accounts receivable

Question 21

conservatism principle

Answer 21

income and assets should not be overstated

Question 22

historical cost principle

Answer 22

assets should be recored at price actually paid for them

Question 23

confirmatory value

Answer 23

provides feedback for previous predictions

Question 24

predictive value

Answer 24

can be used to predict future outcomes

Question 25

comparability

Answer 25

financial information for a company should be comparable with similar companies

Question 26

verifiability

Answer 26

financial information is accurately represented

Question 27

timeliness

Answer 27

how quickly financial information is available

Question 28

understandability

Answer 28

financial information should be easily comprehended

Question 29

adjusting entries

Answer 29

are needed to update all accounts before financial statements can be prepared

Question 30

closing entries

Answer 30

reset temporary accounts and zero the general ledger