section 5

Question 1

Net Sales Revenue

Answer 1

gross sales revenue less any contra revenues, which are reductions in revenue

Question 2

What kind of account is Sales discounts?

Answer 2

Contra-Revenue

Question 3

Is sales discount a real or nominal account?

Answer 3

nominal

Question 4

Why is a contra revenue account used rather than debiting sales revenues directly?

Answer 4

better information for management

Question 5

Can a nominal account have a beginning balance?

Answer 5

no

Question 6

What kind of account has a beginning balance?

Answer 6

real

Question 7

Revenues

Answer 7

the amount of inflowing assets from the sale of goods or services

Question 8

Timing

Answer 8

Revenues are to be recognized by the company and reported on the income statement when a PERFORMANCE OBLIGATION has been satisfied

Question 9

Performance Obligation

Answer 9

a contract to provide a product or service to a customer

Question 10

2 contra revenue examples

Answer 10

sales discount & sales returns and allowances

Question 11

What is Gross Margin

Answer 11

NET sales revenue — COGS (net sales rev MINUS cost of goods sold)

Question 12

What kind of account is Bad Debt Allowance?

Answer 12

contra asset

Question 13

2 approaches to estimate the amount of bad debts

Answer 13

Income statement approach
balance sheet approach

Question 14

income statement approach

Answer 14

% of credit sales
DIRECT method

Question 15

balance sheet approach

Answer 15

% or aging of Accounts Receivable
INDIRECT METHOD

Question 16

T/F Under GAAP revenues are to be recognized in the period in which those revenues are earned and not necessarily in the period in which cash is actually received

Answer 16

true

Question 17

t/f Sales Discounts is a contra-revenue account that typically has a credit balance at the end of an accounting period

Answer 17

false

Question 18

A customer return of used and worthless merchandise previously sold at a profit will reduce the merchandiser’s net income by

Answer 18

the amount of the original sales price of the merchandise

Question 19

T/F under GAAP, the expense associated with the uncollectible accounts receivable is typically calculated and recorded based upon estimations of uncollectibilty

Answer 19

true

Question 20

an overstatement of BDE in a particular year is typically corrected by

Answer 20

understating the expense in the following year

Question 21

T/F the allowance for uncollectible accounts receivable account should always have a balance following year end adjusting entries that is equal to the amount of estimated uncollectible accounts receivable at year end

Answer 21

true

Question 22

T/F if a merchandiser accepts valid customer VISA cards as payment for legitimate merchandise sales, the merchandiser will typically have some bad debt expense arising from such sales transactions

Answer 22

false

Question 23

What kind of account is Deferred Revenue?

Answer 23

liability

Question 24

date of sale journal entry

Answer 24

debit AR or Cash & COGS
credit SR & Inventory

Question 25

An account that appears on the income statement is Real or Nominal?

Answer 25

Nominal and must be closed to retained earnings at the end of a period

Question 26

2 examples of contra revenue accounts

Answer 26

sales discounts
sales returns and allowances

Question 27

Why use contra revenue accounts?

Answer 27

to quickly distinguish info useful to management

Question 28

is allowance for bad debt a real or nominal account?

Answer 28

real and has a cumulative running balance

Question 29

Which accounts have a beginning balance, and are they a natural credit or natural debit balance? Accounts Receivable, Bad Debt Allowance, Bad Debt Expense

Answer 29

AR debit
BDA credit

Question 30

Bad debt expense has a natural

Answer 30

debit balance

Question 31

an Estimate Bad Debt Income statement approach

Answer 31

% of credit sales
DIRECT method

Question 32

an Estimate of Bad Debt balance sheet approach

Answer 32

% or aging of AR
INDIRECT method

Question 33

A credit balance in the Allowance for Uncollectible Accounts Receivable account at the end of the year prior to any adjusting entry for the current year’s uncollectible accounts receivable means the prior year’s estimated uncollectible accounts receivables were

Answer 33

overestimated