Financial Accounting Chapter 5

Question 1

What is another name for accounting for short term investments

Answer 1

Marketable Securities

Question 2

What are the 2 methods of estimating collectibles?

Answer 2

Percent of sales

Aging of receivables

Question 3

What is the risk for extending credit to customers?

Answer 3

Some customers do not pay what is owed

Question 4

Interest Formula

Answer 4

Principal x rate x time

Question 5

Cost less than market price =

Answer 5

Unrealized loss

Question 6

Investment revenue is from

Answer 6

Dividends or interest earned

Question 7

Allowance Method

Answer 7

The estimated amount of uncollectible accounts

Question 8

What is the time period of Accounting for short term investments?

Answer 8

1 year or less

Question 9

In Notes Receivable terms what is Maturity Value?

Answer 9

Sum of principal and interest on note

Question 10

In the allowance method what is recorded that reduces accounts receivable on the balance sheet?

Answer 10

A contra asset

Question 11

Gains and losses are from….

Answer 11

Sales of Investments

Question 12

What account goes on the balance sheet that is netted with accounts receivable?

Answer 12

Allowance for uncollectible accounts

Question 13

Cost greater then market price =

Answer 13

Unrealized gain

Question 14

What specific account goes on the income statement?

Answer 14

Uncollectible accounts expense

Question 15

Percent of sales adjust allowance for uncollectible accounts by

Answer 15

The amount of uncollectible account expense

Question 16

In Notes Receivable terms what is a principal?

Answer 16

Amount borrowed by debtor

Question 17

What is reported on the balance sheet?

Answer 17

Trading investment

Question 18

Contra-asset

Answer 18

Always paired with an asset and reduces its balance

Question 19

Receivables

Answer 19

Monetary claims against others

Question 20

What the difference between Accounts Receivable and Notes Receivable

Answer 20

Accounts Receivable
-Verbal promise

Notes Receivable
-written promise

Question 21

What are 2 differences between realized and unrealized?

Answer 21

Realized

• Investment sold to third party
• Gain or loss = difference between selling price and cost

Unrealized

• Company still owns investment
• Gains or loss = difference between market value and cost

Question 22

In Notes Receivable terms what is Interest

Answer 22

Cost of borrowing money

Question 23

In Notes Receivable terms what is a creditor?

Answer 23

Party to whom money is owed

Question 24

What 3 major things are included in the Direct Write Off Method?

Answer 24

Revenues do not match expenses
Uncollectible accounts expense used for write offs
No allowance for uncollectible accounts

Question 25

What are the 3 categories of Accounting for Short Term Investments?

Answer 25

Trading Investments Available for Sale Held to Maturity

Question 26

Unrealized gain or loss is from

Answer 26

Entry to adjust to market value

Question 27

Unrealized Gains and Losses

Answer 27

Difference between market price and cost of investment at year-end

Question 28

In Notes Receivable terms what is a Maturity Date?

Answer 28

Date debtor must pay the note

Question 29

At year-end how are trading investments adjusted?

Answer 29

Adjusted to their equal market value

Question 30

The allowance is used to

Answer 30

Absorb specific accounts that are determined to be uncollectible

Question 31

Why is the direct write off method less preferred than allowance method? (2 things)

Answer 31

Does not match revenues with expenses | Accounts Receivable overstated

Question 32

In Notes Receivable terms what is a debtor?

Answer 32

Party that owes money

Question 33

What is the cost of extending credit to customers?

Answer 33

Uncollectible Accounts

Question 34

What is overstated in the direct write off method?

Answer 34

Accounts Receivable

Question 35

In Notes Receivable terms what is a creditor also known as?

Answer 35

Lender

Question 36

Trading investments

Answer 36

Held for a short time and then sold

Question 37

In Notes Receivable terms what is another name for a debtor?

Answer 37

Borrower

Question 38

In Notes Receivable terms what is a term?

Answer 38

Length of time money is borrowed

Question 39

What is the difference between percent of sales and aging of receivables?

Answer 39

Percent of Sales Income Statement Approach Aging of Receivables Balance Sheet approach

Question 40

What 3 things are reported on the income statement?

Answer 40

Gains and losses Investment Revenue Unrealized gain or loss

Question 41

Aging of Receivables adjust allowance for uncollectible accounts by

Answer 41

The amount of uncollectible accounts receivable

Question 42

In the allowance method what is always recorded as part of the adjusting process?

Answer 42

An Expense

Question 43

If the cost is greater than the selling price it is a ----.

Answer 43

Gain

Question 44

If the cost is less than the selling price it is a ----.

Answer 44

Loss

Question 45

What is another name for a contra asset

Answer 45

Allowance

Question 46

Bad Debt Expense

Answer 46

What we are not expected to receive from credit sales

Question 47

What does bad debt expense always effect?

Answer 47

Allowance for undoubtful accounts

Question 48

What is another name for allowance for undoubtful accounts?

Answer 48

Uncollectible accounts

Question 49

What does bad debt expense always effect?

Answer 49

Allowance for undoubtful accounts

Question 50

What is another name for allowance for undoubtful accounts?

Answer 50

Uncollectible accounts