CH 5 - Revenue & Receivables Flashcards
The inflow of cash or accounts receivable that a business receives when it provides goods or services to customers is referred to as _______.
revenue or revenues
The final step used to apply the core revenue recognition principle is to recognize revenue
when (or as) each performance obligation is satisfied.
Bingham Corporation sells products to customers for $100,000 cash. The cost of the inventory sold is $65,000. What is the net impact of this transaction on the accounting equation?
*increase in assets of $35,000
*increase in stockholder’s equity of $35,000
On August 25, Morrison Cleaning Solutions received $500 from a customer for services to be provided in the future. Morrison performs the cleaning services on September 10. The financial statement effects for Morrison on September 10 include a(n)
decrease in liabilities and increase in stockholders’ equity
Sadie performs a service that satisfies just one of the three conditions for determining whether revenue should be recognized over time. Sadie should recognize revenue
over time.
Inflows of cash or accounts receivable that result from providing goods or services to customers are Blank______.
revenues
Net revenues is calculated as total revenues minus which of the following?
Sales returns
The five steps used to apply the core revenue recognition principle in the correct order.
- Identify the contract with a customer
- Identify the performance obligation(s) in the contract
- Determine the transaction price.
- Allocate the transaction price to each performance obligation
- Recognize revenue when (or as) each performance obligation is satisfied.
Callen Corporation sells products to customers for $10,000 cash. The cost of the inventory sold is $8,400. The financial statement effects of the sale include a(n)
increase in assets of $1,600
On August 25, Morrison Cleaning Solutions received $500 from a customer for services to be provided in the future. Morrison performs the cleaning services on September 10. On September 10, Morrison recognizes a(n)
increase in Retained Earnings of $500
When a performance obligation is satisfied over time, revenue is recognized in proportion to the amount of the
performance obligation that has been satisfied.
Total revenues less sales returns and discounts are referred to as ___ revenues.
net
Sales returns Blank______ the amount of sales revenue reported on the income statement.
decrease
The first step used to apply the core revenue recognition principle is:
Identify the contract with a customer.
A cash discount representing a reduction in the amount to be paid by a credit customer if the customer pays within a specified period of time is also referred to as a(n) ___ discount.
sales or cash
Sales to customers in which the customers pay within 30 to 60 days are referred to as
*Credit sales
*Sales on Account
On February 10, Trotwell sold a product to a customer on account. On February 20, the customer sent the product back to Trotwell for a full refund. The transaction on February 20 is an example of a(n)
sale return
On April 1, Frost Industries provides $30,000 of services on account. On April 20, Frost collects payment from the customer. The financial statement effects of the sale on April 1 include a(n):
*increase in assets
*increase in stockholders’ equity
What would be a discount in the amount to be paid if the customer pays within a specified time period?
Sales discount
When a business provides services to a customer, and the customer promises to pay later, this is referred to as
credit sales
On April 1, Frost Industries provides $30,000 of services on account. On April 20, Frost collects payment from the customer. The sale on April 1 results in a(n):
*Increase in Accounts Receivable
*Increase in Service Revenue
The allowance method estimates
uncollectible amounts
Under the _________ method, a company reports it accounts receivable for the net amount expected to be collected.
allowance method
The account “Allowance for Uncollectible Accounts” is classified as
a contra asset to accounts receivable
_________ for _____________ ________ is a contra asset account that represents the amount for accounts receivable not expected to be collected. The _________ account provides a way to reduce accounts receivable indirectly, rather than decreasing the accounts receivable balance itself
Allowance for Uncollectible Accounts, Allowance
The difference between total accounts receivable and the allowance for uncollectible accounts is referred to as:
net accounts receivable
The difference between total accounts receivable and the allowance for uncollectible accounts.
Net accounts receivable
_____ _____ transfer goods or services to a customer today while bearing the risk of collecting payment from that customer in the future. Extending credit to customers makes it more convenient for them to purchases goods or services. It can also potentially increase customer loyalty and boost sales, especially if the company’s competitors are not offering credit to their customers.
Credit sales
The cost of estimated accounts receivable that will not be collected is referred to as _________ ______ expense.
(Field 1:) bad, uncollectible, or delinquent
(Field 2:) debt, accounts, or account
The creation of the allowance account also creates an expense account called ___ ____ expense. ___ ____ expense represents the cost of the estimated future bad debts that is reported as an expense in the current year’s income statement.
Bad debt
Under the allowance method, companies estimate Blank______ uncollectible amounts and report those estimates in the Blank______ year.
future; current
The allowance for uncollectible accounts is a contra account to
accounts receivable
The term net accounts receivable refers to
accounts receivable less the allowance for uncollectible accounts.
Pixie Inc. writes off a specific accounts receivable. If Pixie is using the allowance method, the write off will ___ ______ net income.
not affect
The estimated expense for accounts that may not be collected is referred to as
bad debt expense.
Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to
be more accurate.
At the end of 2027, we could multiply total accounts receivable by a single percentage to get an estimate of future uncollectible accounts. However, a more accurate method is to consider the various ages of individual accounts receivable, using a higher percentage of uncollectible for “old” accounts than for “new” accounts. This is known as the _____ method.
Aging
accounts that are 120 days past due are older than accounts that are 60 days past due. The older the account, the less likely it is to be collected. The _____ method is a more detailed application of the percentage-of-receivables method, so it also is a balance sheet method.
aging
When the allowance method is used, the write-off of an uncollectible account:
has no effect on net income
The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the _____ method of accounts receivable.
aging, age, or ages
Two important ratios that help in understanding a company’s effectiveness in managing receivables are the:
*receivables turnover ratio
*average collection period
The ___________ ________ _____ provides a measure of a company’s ability to collect cash from customers. The ratio shows number of times during a year that the average accounts receivable balance is collected (or “turns over”).
Receivable turnover ratio
___________ ________ _____ = Net credit sales/Average accounts receivable
Receivable turnover ratio
The _______ __________ ______ is another way to express the same efficiency measure. This ratio shows the approximate number of days the average accounts receivable balance is outstanding. It is calculated as 365 days divided by the receivables turnover ratio
average collection period
_______ __________ ______ = 365 days/Receivables turnover ratio
Average collection period
A (n) __ receivable is an informal credit arrangement with trade customers, whereas a(n) __ receivable is a formal signed credit arrangement between a creditor and a debtor.
(Field 1:) account, accounts, or trade
(Field 2:) Note or Notes
_____ __________ are similar to accounts receivable but are more formal credit arrangements evidenced by a written debt instrument, or not.
Notes receivable
_____ __________ typically arise from loans to other entities (including affiliated companies), loans to stockholders and employees, and occasionally loans to customers related to the sale of goods and services
Notes receivable
The financial statement effects of accepting a note receivable include a(n):
*Increase in total assets
*Increase in total stockholders’ equity
On November 1, Year 1, ABC, Inc., received a 3-month, 8%, $1,500 note receivable with interest and principal to be collected on February 1 of Year 2. What is the amount of interest revenue that should be reported for Year 1?
$20 (Face value x Annual interest rate x Fraction of the year or _/12)
The receivables turnover ratio and the average collection period provide information about a company’s
effectiveness in managing receivables
Formal credit arrangement between borrower and lender
Note receivable
Informal credit agreement with trade customers
Account receivable
On March 1, Terry Corp. provided services to a customer. Terry agreed to accept a $60,000, 5%, 6-month interest-bearing note as payment for the services. For Terry, acceptance of the note results in a(n):
*increase in Notes receivable
*Increase in Service Revenue
On September 1, Year 1, Parnell Inc. received a 6-month, 6%, $2,000 note receivable with interest and principal to be collected on March 1 of Year 2. What is the amount of interest revenue that should be reported for Year 1?
$40
