FA Chapter 7

Question 1

Revenue Principle: Revenues are recorded when…

Answer 1

1. Goods or services have been delivered
2. There is persuasive evidence of a customer payment arrangement
3. Price is fixed or determinable
4. Collection is reasonably assured

Question 2

FOB Shipping Point

Answer 2

Title is customers as soon as it leaves my store

Means: Free On Board

Question 3

FOB Destination

Answer 3

Title is mine until it reaches customer

Means: Free On Board

Question 4

Companies accept credit cards for 5 reasons:

Answer 4

1. To increase sales.
2. To avoid providing credit directly to customers.
3. To avoid losses due to bad checks.
4. To avoid losses due to fraudulent credit card sales.
5. To receive payment quicker.

Question 5

When credit card sales are made, the company must…

Answer 5

pay the credit card company a fee for the service it provides.

Question 6

2/10, net 30 (or N/30)

Answer 6

Discount %/ # of days in discount period, net(total sales less returns) maximum days in credit period

Question 7

These situations are recorded in a separate account called Sales Returns and Allowances:

Answer 7

1. ) Damaged Merchandise

2. ) Returned Merchandise

Question 8

Sales Revenue Adjustment Process:

Sales Revenue=

Answer 8

1. Subtract Credit Card Fees
2. Subtract Sales discount
3. Subtract Sales Ret+Allow
4. =Net Sales

Question 9

Notes receivable

Answer 9

are written promises from another party to pay with specified terms.

Question 10

Bad debts result from…

Answer 10

credit customers who will not pay the amount they owe, regardless of collection efforts.

Question 11

Bad Debt Expense is classified as a

Answer 11

selling expense (operating expense) and is closed at year-end

Question 12

When it is clear that a specific customer’s account receivable will be uncollectible, the amount should be removed from the

Answer 12

Accounts Receivable account and charged to the Allowance for Doubtful Accounts

Question 13

Each customer’s account is aged by breaking down the balance by

Answer 13

showing the age (in number of days) of each part of the balance.

Question 14

Cash is the asset most susceptible to

Answer 14

Theft and Fraud

Question 15

Internal Control of Cash: Policies and procedures designed to:

Answer 15

1. Properly account for assets
2. Safeguard assets
3. ensure the accuracy of financial records