Chapter 8

Question 1

What is service organization?

Answer 1

Records a receivable when it provides service on account

Question 2

What is merchandiser?

Answer 2

Records accounts receivable at the point of sale of merchandise

Question 3

What is the Bad Debts Expense?

Answer 3

Seller records losses that result from extending credit

Question 4

What is a promissory note?

Answer 4

A written promise to pay a specified amount of money on demand or at a definite time

Question 5

How do you compute the interest on notes receivable?

Answer 5

Value of Note x IR x Time in terms of one year = Interest

Question 6

In extending credit, when will you lose sales?

Answer 6

If the credit policy is too tight

Question 7

How do you calculate the receivables turnover ratio?

Answer 7

(net credit sales)/(avg net receivables)

Question 8

How do you calculate average collection period?

Answer 8

(365)/(Receivables turnover ratio)

Question 9

What are three reasons for the sale of receivables?

Answer 9

1) Size
2) Companies may sell receivable because for liquidation
3) Billing and collection are often time-consuming and costly

Question 10

What are the three parties involved when credit cards are used?

Answer 10

1) Credit card issuer
2) Retailer
3) Consumer

Question 11

What is a factor?

Answer 11

A finance company or bank that buys receivables from businesses for a fee then collects the payments directly from the consumers