Chapter 7

Question 1

Accounts receivable

Answer 1

Amounts customers owe on account.

Question 2

Aging the accounts receivable

Answer 2

A schedule of customer balances classified by the length of time they have been unpaid.

Question 3

Allowance method

Answer 3

A method of accounting for bad debts that involves estimating uncollectible accounts at the end of each period.

Question 4

Average-cost method

Answer 4

An inventory costing method that uses the weighted-average unit cost to allocate the cost of goods available for sale to ending inventory and cost of goods sold.

Question 5

Bad Debt Expense

Answer 5

The account in which the seller records losses resulting from extending credit.

Question 6

Cash (net) realizable value

Answer 6

The net amount a company expects to receive in cash from receivables.

Question 7

Consigned goods

Answer 7

Goods held for sale by one party although ownership of the goods is retained by another party.

Question 8

Days in inventory

Answer 8

Measure of the average number of days inventory is held; calculated as 365 divided by inventory turnover.

Question 9

Direct write-off method

Answer 9

A method of accounting for bad debts that involves charging receivable balances to Bad Debt Expense at the time receivables from a particular company are determined to be uncollectible.

Question 10

Finished goods inventory

Answer 10

Manufactured items that are completed and ready for sale.

Question 11

First-in, first-out (FIFO) method

Answer 11

An inventory costing method that assumes that the earliest goods purchased are the first to be sold.

Question 12

FOB destination

Answer 12

Freight terms indicating that ownership of goods remains with the seller until the goods reach the buyer.

Question 13

FOB shipping point

Answer 13

Freight terms indicating that ownership of goods passes to the buyer when the public carrier accepts the goods from the seller.

Question 14

Inventory turnover

Answer 14

A ratio that indicates the liquidity of inventory by measuring the number of times average inventory is sold during the year; computed by dividing cost of goods sold by the average inventory.

Question 15

Just-in-time (JIT) inventory

Answer 15

Inventory system in which companies manufacture or purchase goods only when needed.

Question 16

Last-in, first-out (LIFO) method

Answer 16

An inventory costing method that assumes that the latest goods purchased are the first to be sold.

Question 17

Notes receivable

Answer 17

Written promise (as evidenced by a formal instrument) for amounts to be received.

Question 18

Percentage-of-receivables basis

Answer 18

A method of estimating the amount of bad debt expense whereby management establishes a percentage relationship between the amount of receivables and the expected losses from uncollectible accounts.

Question 19

Raw materials

Answer 19

Basic goods that will be used in production but which have not yet been placed in production.

Question 20

Receivables

Answer 20

Amounts due from individuals and companies that are expected to be collected in cash.

Question 21

Specific identification method

Answer 21

An actual physical-flow costing method in which particular items sold and items still in inventory are specifically costed to arrive at cost of goods sold and ending inventory.

Question 22

Trade receivables

Answer 22

Notes and accounts receivable that result from sales transactions.

Question 23

Weighted-average unit cost

Answer 23

Average cost that is weighted by the number of units purchased at each unit cost.

Question 24

Work in process

Answer 24

That portion of manufactured inventory that has begun the production process but which is not yet complete.