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Financial Accounting > CH 5 > Flashcards

CH 5 Flashcards

1
Q

What is account receivable?

A

a. Amount cash owed to a company from operation services.

b. a. Legal right to receive cash is valuable and represents an asset of the company.

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2
Q

What are credit sales( or sales on account)

A

a. Transfer products and services to a customer today while bearing the risk of collecting payment from that customer.

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3
Q

What is another way of identify a credit sale?

A

a. Customer is unlikely to pay a company for either products or services.

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4
Q

Can credit cards be used if credit limit goes beyond limits?

A

No

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5
Q

If customer is not reasonable, can a firm record it as revenue?

A

a. No, customer does not have credibility to pay because of their poor payment.

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6
Q

7) What are other receivables?

A

a. Non-trade receivables ( sources that originate from other accounts that are not customers)
b. Tax refund
c. Interest receivable
d. Loans ( by company to other entities-stockholders)
e. Notes receivable ( debt instruments)

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7
Q

How do discounts benefit in the short term?

A

a. They cannot

i. It can reduce revenue in short run

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8
Q

What is net revenues?

A

a. Company’s total revenues less than amounts due to discounts

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9
Q

What are trade discounts?

A

a. Reduction in the listed price of a product or services.

b. Trade discounts are indirectly recorded

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10
Q

What is sales discount?

A

Represents a reduction not in the selling price of a product or service.

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11
Q

What are discount terms?

A

2/10, n/30

i. 2/10 = 2% if the amount is paid within 10 days.
ii. n/30= no discount, payment is due within 30 days

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12
Q

Is a sales discount a contra revenue account?

A

is an account balance that is opposite to revenue

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13
Q

What is a partial income statement?

A

list of uncollected accounts receivable and bad debt expenses.

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14
Q

What is a sales return?

A

A customer returns a product, so the company

  1. Reduce the customer’s account balance if on account
  2. Company issues a cash refund if purchased in cash.
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15
Q

What is sales allowance?

A

a. When a company’s product and services have a deficiency, the seller reduces balanced owed or provides a partial refund.

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16
Q

Is a sales allowance a contra revenue account?

A

Yes

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17
Q

Does a company have a recurring problem with customer satisfaction?

A

a. Provide sales returns and allowances

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18
Q

What are the positive effects of extending credit to customers?

A

Boost sales by allowing customers the ability to purchases on account and pay cash later.

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19
Q

What is negative effects of extending credit?

A

a. Not all customers will pay fully on their accounts.

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20
Q

What is an noncollectable accounts?

A

a. Customer’s accounts are not collectible

b. Bad debts another name for noncollectable accounts.

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21
Q

What is allowance method?

A

a. Allowing for the possibility that some accounts will be uncollected at some point in the future.

22
Q

IS this statement true: “ Companies are required to estimate future collectible accounts and record those estimates in the current year”.

A

true

23
Q

What are the effects of uncolletable accounts?

A

reduce accounts receivable

bad debt expenses

24
Q

If a customer isn’t expected to pay, a company records as a loss?

A

true

25
Q

How do you determine uncollectiveble accounts?

A

based on the percentage of accounts ( percentage of receivables method)

26
Q

What is another name of percentage of receivables method?

A

balance sheet method

27
Q

What is balance sheet method?

A

i. Estimation of bad debts on a balance sheet amount.

28
Q

What is net realizable value?

A

a. In accounts receivable, a firm should report the amount that expects to collect.

29
Q

What is bad debt expense?

A

represents the cost the estimated future bad debts

30
Q

How do you adjust for estimates of future uncollected account?

A

a. Record a partial income statement

i. During period, match bad debts with credit sales.

31
Q

Is allowance for uncollectable accounts a contra asset?

A

Yes

32
Q

What is net accounts receivable?

A

a. Difference between total accounts receivable and allowance for uncollectible accounts

33
Q

When are company’s credit sales polices too lenient?

A

use partial income statement

34
Q

How do you journalize your allowance of uncollected accounts?

A

a. (Dr)Allowance of uncollected accounts
b. (Cr) accounts receivable
c. ( reported uncollected account from bad debtor)

35
Q

How do you journalize estimation of bad debts?

A

a. (Dr) bad debt expense
b. (Cr) allowance for uncollective accounts
c. (estimate future bad debts

36
Q

Is this a true statement: “Collecting cash on an account previously written off has no effect on total assets and no effect on net income?”

A

true

37
Q

Are uncollective estimates correct most of the time?

A

a. No, “ it’s highly unlikely they will prove exactly correct”.

38
Q

What is the aging method?

A

a. Using a higher percentage for old accounts than for new accounts when estimating collectible accounts.

39
Q

Are old account much more likely to be collected?

A

a. No, they are less likely.

40
Q

What is direct write off method?

A

a. Recording bad debt expense at the time we know the account is uncollectible.

41
Q

Why doesn’t direct write off work in financial reporting?

A

a. There is no probability that cash will be collected.

b. There would be no adjustments if accounts are received by payer

42
Q

Is this a true statement, “The direct write off method is used for tax purposes but is generally not permitted for financial and operation reporting”.

A

a. False, only financial NOT operative activities

43
Q

What is notes receivable?

A

a. A formal credit arrangements evidenced by a written debt instrument or note.

44
Q

Are notes receivable a long term assets?

A

yes

45
Q

Can account receivable be replaced with notes receivable?

A

a. Yes, it has no impact on accounting equation; it just reclassifying assets.

46
Q

Can accounts payable be reclassified as note payable, vice versa?

A

a. Yes, it does not impact the equation.

47
Q

How do you journalize interest revenue when you cash in a note?

A

a. (dr) cash
b. (cr) note receivable
c. ( cr) Interest revenue

48
Q

What is receivable turnover ratio?

A

a. Number of times during a year that the average accounts receivable balance is collected (turned over). It equals net credit sales divided by average accounts receivable.

49
Q

What is average collection period?

A

a. Approximate number of days the average account receivable balance is outstanding. It equals 365 divided by the receivables turnover ratio.

50
Q

Is the company effectively managing its receivables?

A

a. Receivables turnover ratio and average collection period.

51
Q

Is this a true statement: Receivables turnoever ratio and average collection period can provide an indication of management’s ability to collect cash from customers.

A

true

Financial Accounting (11 decks)

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