Deck 4: Cash and Receivables

Question 1

A company with net sales of $850,000, a beginning balance of net receivables of $230,000, and an ending balance of net receivables of $190,000 has a days' sales in receivables of:

A) 99 days
B) 90 days
C) 92 days
D) 82 days

Answer 1

B

Question 2

Which of the following items below may be made to reconcile a book balance to a bank balance?

A) outstanding cheques
B) an EFT receipt
C) an addition or subtraction to correct a bank error, as appropriate
D) a deposit in transit

Answer 2

B

Question 3

In 2020, Digital Asset Management Corp. (DAM) collected $2,500,000 from its customers. These cash receipts would be reported on DAM's 2020 cash flow statement as a(n):

A) investing activity
B) financing activity
C) operating activity
D) operating and investing activities

Answer 3

C

Question 4

Using the aging-of-accounts-receivable method, you estimate that total uncollectible accounts are $3,800. The Allowance for Uncollectible Accounts prior to adjustment has a credit balance of
$1,100. The amount of the adjusting entry should be:

A) $1,100
B) $3,800
C) $4,900
D) $2,700

Question 5

Which of the following is a correct statement regarding methods to speed up the collection of cash from receivables?

A) The company that factors its receivables maintains control over the collection process.
B) Credit Card Fee is reported on the income statement.
C) Credit card companies will charge a fee of 20-30% of the total amount of the sale.
D) Factoring is used frequently by companies since it is an inexpensive way to raise cash.

Question 6

Under the allowance method, if bad debt write-offs during the year exceed the allowance amount,

A) will be zero
B) should be adjusted by debiting it to bring the balance back to zero
C) should be deducted from Accounts Receivable
D) will be a debit

Question 7

If a bookkeeper mistakenly recorded a disbursement of $63 instead of the correct amount of $36, the error would be shown on the bank reconciliation as a:

A) $27 deduction from the books
B) $27 addition to the books
C) $36 addition to the books
D) $36 deduction from the books

Question 8

The aging-of-receivables method of estimating uncollectible accounts is:

A) an income statement approach, since it focuses on the amount of expense to be reported on the income statement
B) not an acceptable method of estimating bad debts
C) a balance sheet approach, since it focuses on accounts receivable
D) is required to be used by all companies because it focuses on what should be the most relevant and faithful representation of accounts receivable on the balance sheet

Question 9

A company with net sales of $500,000, a beginning balance of net receivables of $80,000, and an ending balance of net receivables of $90,000 has a collection period of:

A) 62 days
B) 54 days
C) 197 days
D) 6 days

Question 10

If a bank statement included a bank collection and related interest revenue, the journal entry to record this reconciling item would include a:

A) debit to Note Payable
B) debit to Note Receivable
C) credit to Cash
D) debit to Cash

Question 11

Under the allowance method, the entry to reinstate an account previously written off:

A) increases total assets
B) decreases net income
C) increases net income
D) has no effect on net income

Question 12

The Bad Debt Expense account is classified:

A) as part of cost of goods sold
B) as a contra-asset account
C) deducted from Accounts Receivable account on the balance sheet
D) as the cost to the seller of extending credit

Question 13

Trevino Company has decided to factor its accounts receivable in order to get the immediatereceipt of cash. The journal entry to record the factoring of the receivables would include:

A) a debit to Cash, credit to Interest Revenue and credit to Accounts Receivable
B) a debit to Cash and a credit to Accounts Receivable
C) a debit to Cash, debit to Financing Expense and credit to Accounts Receivable
D) a debit to Accounts Receivable and a credit to Cash

Question 14

If a bookkeeper mistakenly recorded a disbursement of $48 instead of the correct amount of $84, the error would be shown on the bank reconciliation as a:

A) $48 addition to the books
B) $36 deduction from the books
C) $48 deduction from the books
D) $36 addition to the books

Question 15

The person or business to whom the signer of a promissory note promises a future payment is called the:

A) drawer
B) principal party
C) payee
D) maker

Question 16

The expense of not collecting from customers is called:

A) bad debt expense
B) net realizable value
C) net receivables
D) allowance for uncollectibles

Question 17

Which of the following, when prepared correctly, ensures that all cash transactions have beenaccounted for and that the bank and book records of cash are correct?

A) setting up a lock-box system
B) bank statement
C) bank remittance
D) bank reconciliation

Question 18

Using the aging-of-accounts-receivable$3,800. The Allowance for Uncollectible Accounts prior to adjustment has a debit balance of $1,100. The amount of the adjusting entry should be:

A) $3,800
B) $4,900
C) $2,700
D) $1,100

Question 19

Waterloo Limited accepts a note to settle an overdue account from a customer. The journal entryon Waterloo Limited's books will include a:

A) debit to Accounts Receivable
B) credit to Note Receivable
C) debit to Note Receivable
D) debit to Note Payable

Question 20

Cheques that have been written by the company but not received by the bank are called:

A) cancelled cheques
B) outstanding cheques
C) cheques in transit
D) NSF cheques

Question 21

In a bank reconciliation, interest revenue is:

A) deducted from the bank balance on the bank statement
B) deducted from the bank balance in the general ledger
C) added to the bank balance on the bank statement
D) added to the bank balance in the general ledger

Question 22

If the bookkeeper mistakenly records a deposit of $530 as $350, the error would be shown on the bank reconciliation statement as a:

A) $180 addition to the book balance
B) $180 addition to the bank balance
C) $180 deduction from the bank balance
D) $180 deduction from the book balance

Question 23

Which of the following items can be included as cash equivalents on the balance sheet?

A) prepaid expenses
B) short-term investments
C) inventory
D) accounts receivable

Question 24

Using the aging-of-accounts-receivable method to estimate uncollectible receivables, CMU Corporation estimates that $3,750 of its accounts receivable will be uncollectible. Prior to adjustment, the Allowance for Uncollectible Accounts has a credit balance of $600. Bad debt expense to be reported on the income statement is:

A) $3,750
B) $3,150
C) $4,350
D) $600

Question 25

Managers estimate bad debt expense based on:

A) revenue recognition principle
B) the cost constraint
C) historical-cost assumption
D) their professional judgment

Question 26

A written promise to pay a specified amount of money at a particular future date is called a(n):

A) unearned revenue
B) promissory note
C) maturity note
D) account receivable

Question 27

On December 31, 2020, James Company has an accounts receivable balance of $324,000 before any year-end adjustments. The Allowance for Doubtful Accounts has a $1,100 credit balance. The company prepares the following aging schedule for accounts receivable:

A) $12,160
B) $1,570
C) $9,960
D) $11,060

Question 28

If the bank records a deposit of $3,300 as $330, the error would be shown on a bank reconciliation as:

A) an addition to the book balance of $2,970
B) a deduction from the bank balance of $2,970
C) a deduction from the book balance of $2,970
D) an addition to the bank balance of $2,970

Question 29

In a bank reconciliation, items recorded by the bank but not yet recorded by the company include:

A) deposits in transit
B) bank collections
C) deposits in transit and outstanding cheques
D) outstanding cheques

Question 30

Which of the following are excluded from the numerator in the calculation of the acid-test ratio?

A) prepaid expenses and cash
B) inventory and prepaid expenses
C) inventory and short-term investments
D) inventory and accounts receivable

Question 31

On the maturity date, the payee of a note will:

A) debit Cash, credit Note Receivable and Interest Expense
B) debit Cash, credit Note Payable and Interest Revenue
C) debit Cash, credit Note Receivable and Interest Revenue
D) debit Cash, credit Note Payable and Interest Expense

Question 32

An aging-of-accounts-receivable indicates that the amount of uncollectible accounts is $3,410. The Allowance for Uncollectible Accounts prior to adjustment has a credit balance of $500. The
Accounts Receivable balance is $44,820. The amount of the adjusting entry for uncollectible accounts should be for:

A) $2,910
B) $3,910
C) $3,410
D) $500

Question 33

A ledger that contains a separate account for each customer is called an accounts receivable:

A) trade ledger
B) subsidiary ledger
C) control ledger
D) current ledger

Question 34

If a bank reconciliation included $600 of outstanding cheques, the journal entry to record this reconciling item would include:

A) a credit to Accounts Payable of $600
B) a credit to Cash of $600
C) a debit to Cash of $600
D) no entry is required

Question 35

In a bank reconciliation, a bank error:

A) may be added or deducted from the bank balance on the bank statement
B) must be added to the bank balance on the bank statement
C) may be added or deducted from the bank balance in the general ledger
D) must be deducted from the bank balance on the bank statement

Question 36

Estimating uncollectible accounts by analyzing receivables from specific customers according to how long each has been outstanding is known as the:

A) aging-of-receivables method
B) percent-of-sales method
C) direct write-off method
D) indirect write-off method

Question 37

Under the allowance method for estimating uncollectible accounts, the entry to write off an account:

A) has no effect on total assets
B) reduces total assets
C) reduces net income
D) increases net income

Question 38

The number of days it takes to collect the average amount of receivables is called:

A) the current ratio
B) the acid-test ratio
C) days' sales in receivables
D) the quick ratio

Question 39

Stelloh's Berry Farm accepted a bank-issued credit card in payment of a $1,300 sales transaction. Stelloh's bank charges 3% to process the transaction. The journal entry to record the sales
Transaction will include (Ignore cost of goods sold.):

A) a debit to Accounts Receivable for $1,300, a debit to Credit Card Revenue for $39 and a credit to Sales Revenue for $1,339
B) a debit to Accounts Receivable for $1,261 and a credit to Sales Revenue for $1,261
C) a debit to Cash for $1,300 and a credit to Sales Revenue for $1,300
D) a debit to Cash for $1,261, a debit to Credit Card Fee for $39 and a credit to Sales Revenue for $1,300

Question 40

If a bank statement included an NSF cheque for $450, the journal entry to record this reconciling item would include a:

A) debit to Cash for $450
B) debit to Accounts Payable for $450
C) credit to Accounts Receivable for $450
D) credit to Cash for $450

Question 41

After a customer's account has been written off under the allowance method, the customer sends the company the amount owed. Before the receipt of cash can be recorded, the company must first:

A) credit Bad Debt Expense
B) debit Allowance for Uncollectible Accounts
C) debit Accounts Receivable
D) credit Accounts Receivable

Question 42

In a bank reconciliation, a bank collection is:

A) added to the bank balance in the general ledger
B) deducted from the bank balance in the general ledger
C) added to the bank balance on the bank statement
D) deducted from the bank balance on the bank statement

Question 43

Under the allowance method, the entry to record the bad debts estimate includes a:

A) credit to Accounts Receivable
B) debit to Accounts Receivable
C) debit to Allowance for Uncollectible Accounts
D) debit to Bad Debt Expense

Question 44

A company has $50,000 in cash, $85,000 in short-term investments, $120,000 in net current receivables, and $145,000 in inventory. The total current liabilities of the firm are $275,000. The acid-test ratio of the company is:

A) 1.76
B) 0.64
C) 0.93
D) 1.45

Question 45

In a bank reconciliation, bank service charges are:

A) deducted from the bank balance in the general ledger
B) deducted from the bank balance on the bank statement
C) added to the bank balance in the general ledger
D) added to the bank balance on the bank statement

Question 46

What category of account is the Allowance for Uncollectible Accounts account?

A) contra-asset account
B) expense account
C) contra-expense account
D) contra-revenue account

Question 47

Which of the following items will not cause a difference between the book balance and the bank balance?

A) cancelled cheques
B) outstanding cheques
C) bank collections
D) deposits in transit

Question 48

The balance in Accounts Receivable was $700,000 at the beginning of the year and $780,000 at the end of the year. Credit sales for the year totaled $4,110,000. During the year, $430,000 in customer accounts were written off. How much cash was collected from customers during the period?

A) $3,600,000
B) $4,460,000
C) $4,030,000
D) $4,620,000

Question 49

The current ratio measures which of the following:

A) The company's ability to pay current liabilities with current assets.
B) How long in takes to collect the average level of receivables.
C) The company's ability to pay all liabilities with all assets.
D) The company's ability to pay all liabilities with current assets.

Question 50

The interest on a $50,000 note at 9% for 4 months is:

A) $18,000
B) $4,500
C) $1,500
D) $1,125

Question 51

If the balance on the bank statement does not equal the balance in the company's Cash account, then you can conclude that:

A) the bank made an error
B) both the company accountant and the bank made errors
C) the company accountant made an error in the accounting process
D) there are some reconciling items that, when identified, will explain the differences between the balances

Question 52

IXOS Ltd. accepted an eighteen-month, $15,000, 8% note from ECM Corporation on June 1, 2020. The amount of interest to be accrued on December 31, 2020, is:

A) $600
B) $1,200
C) $700
D) $1,800

Question 53

In a bank reconciliation, there might be items which have been recorded by the company that have not yet been recorded by the bank. Examples of such items would include:

A) bank service charges
B) deposits in transit
C) bank collections
D) NSF cheques

Question 54

The entry to record accrued interest on a note receivable at year end includes a:

A) debit to Note Receivable
B) debit to Cash
C) debit to Interest Receivable
D) debit to Interest Revenue

Question 55

The asset requiring the highest level of safekeeping is:

A) Inventory
B) Cash
C) Accounts Receivable
D) Capital Assets

Question 56

If the bookkeeper mistakenly records a deposit of $360 as $630, the error would be shown on the bank reconciliation statement as a:

A) $270 addition to the bank balance
B) $270 deduction from the book balance
C) $270 addition to the book balance
D) $270 deduction from the bank balance

Question 57

If the bank records a deposit of $50 as $150, the error would be shown on a bank reconciliation as:

A) a deduction from the book balance of $100
B) a deduction from the bank balance of $100
C) an addition to the bank balance of $100
D) an addition to the book balance of $100

Question 58

Selling accounts receivable typically:

A) decreases total assets and increases revenues
B) has no effect on total assets and decreases expenses
C) decreases total assets and increases expenses
D) increases total assets and increases revenues

Question 59

The journal entry to record receivables is a debit to:

A) notes receivable
B) revenue
C) cash
D) accounts receivable

Question 60

The following account balances were extracted from the accounting records of Thomas Corporation at58)the end of the year:

A) $1,104,000
B) $1,167,000
C) $1,065,000
D) $1,143,000

Question 61

When a note matures, the maker should record:

A) unearned revenue
B) interest revenue
C) interest expense
D) interest receivable

Question 62

Using the aging-of-accounts-receivable method to estimate uncollectible receivables, Records Management Corp. estimates that $8,000 of its accounts receivable will be uncollectible. Prior to adjustment, the Allowance for Uncollectible Accounts has a debit balance of $2,000. Bad debt expense to be reported on the income statement is:

A) $10,000
B) $2,000
C) $8,000
D) $6,000

Question 63

With regard to notes receivable, which of the following statements is correct?

A) The borrower signs a written promise to pay the lender a definite sum at the maturity date, with interest.
B) Notes receivable are also called promissory notes because a written promise to pay is not required.
C) Notes receivable are less formal contracts than accounts receivable.
D) All notes receivable require the borrower to pledge collateral.

Question 64

The category "Other Receivables" on the balance sheet includes:

A) Accounts Receivable, Interest Receivable
B) Notes Receivable
C) Notes Receivable, Accounts Receivable, Interest Receivable
D) Interest Receivable, Dividend Receivable, Advances to Employees

Question 65

What is an example of an item recorded by the company but not yet recorded by the bank?

A) an electronic funds transfer
B) an NSF cheque
C) a service charge
D) a deposit in transit

Question 66

Under the aging-of-accounts-receivable method:

A) the balance in accounts receivable prior to adjustment must be considered
B) the balance in Allowance for Uncollectible Accounts prior to adjustment must be considered
C) the balance in Allowance for Uncollectible Accounts prior to adjustment is ignored
D) the balance in Bad Debt Expense prior to adjustment must be considered

Question 67

When preparing a bank reconciliation, which of the following items would be subtracted from the bank balance on the bank statement?

A) bank service charges
B) deposits in transit
C) EFT cash payments
D) outstanding cheques

Question 68

In a bank reconciliation, an EFT cash receipt is:

A) added to the bank balance on the bank statement
B) added to the bank balance in the general ledger
C) deducted from the bank balance on the bank statement
D) deducted from the bank balance in the general ledger

Question 69

In a bank reconciliation, an NSF cheque is:

A) added to the bank balance on the bank statement
B) deducted from the bank balance on the bank statement
C) deducted from the bank balance in the general ledger
D) added to the bank balance in the general ledger

Question 70

The interest on a $50,000 note at 12% for 60 days is:

A) $56,000.00
B) $986.30
C) $44,000.00
D) $1,000.00

Question 71

In a bank reconciliation, a book error:

A) must be deducted from the bank balance in the general ledger
B) may be added or deducted from the bank balance on the bank statement
C) may be added or deducted from the bank balance in the general ledger
D) must be added to the bank balance in the general ledger

Question 72

When preparing a bank reconciliation, which of the following items would be added to the book balance?

A) EFT cash receipts
B) EFT payments
C) NSF cheques
D) deposits in transit

Question 73

Smart-T Corporation uses the aging-of-accounts-receivable method to estimate uncollectible receivables. At year end Smart-T estimates that $4,750 of its accounts receivable will be uncollectible. Prior to adjustment, the Allowance for Uncollectible Accounts has a credit balance of $200. Bad debt expense to be reported on the income statement is:

A) $4,750
B) $4,550
C) $200
D) $4,950

Question 74

When a note matures, the payee should record:

A) interest expense
B) interest revenue
C) unearned revenue
D) interest payable

Question 75

The account that shows the amount of accounts receivable that the business does not expect to collect is:

A) Sales Discounts
B) Allowance for Uncollectible Accounts
C) Sales Returns and Allowances
D) net Accounts Receivable

Question 76

In a bank reconciliation, a deposit in transit is:

A) added to the bank balance in the general ledger
B) deducted from the bank balance on the bank statement
C) added to the bank balance on the bank statement
D) deducted from the bank balance in the general ledger

Question 77

Net accounts receivable is calculated as:

A) accounts receivable less bad debt expense
B) accounts receivable plus allowance for uncollectible accounts
C) sales less sales returns and allowances
D) accounts receivable less allowance for uncollectible accounts

Question 78

In a bank reconciliation, outstanding cheques are:

A) added to the bank balance in the general ledger
B) deducted from the bank balance on the bank statement
C) deducted from the bank balance in the general ledger
D) added to the bank balance on the bank statement

Question 79

Cash collected from accounts receivable is shown on the cash flow statement as a(n):

A) investing activity
B) financing activity
C) operating activity
D) either as an operating activity or as a financing activity

Question 80

On a statement of cash flows, collection of accounts receivable are classified as:

A) an operating activity
B) a noncash investing and financing activity
C) an investing activity
D) a financing activity