Deck 8: Cash and Receivables

Question 1

The SEC requires companies to disclose the amount of compensating balances in a note to the financial statements.

Answer 1

True

Question 2

A contingent liability is generally not disclosed in the notes to the financial statements.

Answer 2

False

Question 3

Trade credit arises from credit sales.

Answer 3

True

Question 4

Securitization expedites the receipt of cash from sales made on credit for a fee.

Question 5

A company's acceptance of credits cards,like MasterCard,is an example of factoring with recourse.

Question 6

The receivable turnover is expressed in terms of times.

Question 7

Receivable turnover cannot be calculated without first knowing the days' sales uncollected.

Question 8

Having a compensating balance decreases a company's liquidity.

Question 9

A compensating balance refers to a minimum amount that must remain in a bank account as part of a credit-granting arrangement.

Question 10

Compensating balances are kept as part of the Cash account balance on the balance sheet.

Question 11

A discounted note represents a contingent liability because a potential liability exists.

Question 12

Companies that experience seasonal cycles of business activity need not manage their cash as carefully as companies whose business is not cyclical.

Question 13

Purchasing receivables with recourse is riskier than purchasing them without recourse.

Question 14

The fee for factoring with recourse is normally higher than it would be without recourse.

Question 15

The higher the receivable turnover,the lower the days' sales uncollected.

Question 16

It is considered unethical to use the estimate for bad debts to purposely manipulate the amount of net income.

Question 17

Loans to company employees should be classified on the balance sheet as receivables from employees.

Question 18

Notes payable and cash are examples of short-term financial assets.

Question 19

Under discounting,a company sells its receivables in batches at a discount.

Question 20

Accounts receivable and inventory are considered short-term financial assets.

Question 21

A bank reconciliation begins with the balances as of the beginning of the month.

Question 22

A petty cash fund is an example of an imprest system.

Question 23

Following a stringent credit-granting policy will probably result in fewer defaults by customers.

Question 24

Credit balances in customer accounts appear on the balance sheet as a current asset.

Question 25

In a petty cash fund,the current cash amount plus the receipts submitted should equal the original fixed amount.

Question 26

Most operating transactions do not use or generate cash.

Question 27

When Company A discounts,with recourse,a note to Company B,Company A has a contingent liability until the note is paid.

Question 28

Cash equivalents are defined as investments that carry a term of less than one year.

Question 29

When an individual uses a debit card to make a purchase,the amount of the purchase is deducted directly from that individual's bank account.

Question 30

Bad debts are considered an expense of selling on credit.

Question 31

Automated teller machines (ATMs)are used primarily by consumers rather than by businesses.

Question 32

A successful credit policy balances an acceptable level of credit losses with the potential for profit from total credit sales.

Question 33

On a bank reconciliation,a bank service charge would be added to the balance per books.

Question 34

A compensating balance restricts cash; in effect,it increases the interest on the loan and reduces a company's liquidity.

Question 35

On a bank reconciliation,outstanding checks are deducted from the balance per books.

Question 36

Customers with credit balances in their accounts are entitled to a refund if they do not intend to make any future purchase.

Question 37

On a bank reconciliation,an NSF check would be deducted from the balance per book.

Question 38

On a bank reconciliation,interest income would be added to the balance per book.

Question 39

A company that factors its receivables will have a less favorable receivable turnover than a company that does not factor.

Question 40

Cash equivalents are categorized as cash on the balance sheet.

Question 41

The Allowance for Uncollectible Accounts is a contra-asset account.

Question 42

The allowance for uncollectible accounts is similar to accumulated depreciation in that it represents the total of all accounts written off over the years.

Question 43

When an account receivable that was previously written off is collected,it is necessary to reverse the entry for the write-off before recording the collection.

Question 44

A check that is outstanding for two consecutive months will appear only on the first month's bank reconciliation.

Question 45

The use of electronic funds transfers makes check writing necessary.

Question 46

Under the accounts receivable aging method,the balance in Allowance for Uncollectible Accounts must be considered prior to adjusting for estimated uncollectible accounts.

Question 47

The allowance method of handling bad debts violates the matching principle.

Question 48

A debit memorandum means that an amount was added to the bank balance; a credit memorandum means that an amount was deducted.

Question 49

The direct charge-off method makes an attempt to match bad-debt losses with revenues.

Question 50

The accounts receivable aging method of estimating uncollectible accounts is in violation of the matching principle.

Question 51

Uncollectible accounts cannot be estimated because it is not possible to know which accounts will not be collected.

Question 52

Because bad debt losses are incurred to generate sales,they should be charged against the sales that they helped generate.

Question 53

The allowance method of recognizing uncollectible accounts is not in accordance with good accounting practice.

Question 54

The account Allowance for Uncollectible Accounts is adjusted at the end of the accounting period.

Question 55

Under the direct charge-off method,uncollectible accounts must be estimated if the matching rule is to be followed.

Question 56

It is usually a good business practice to maintain as large a balance in the Cash account as possible.

Question 57

Excess cash should be kept in a petty cash fund.

Question 58

When the direct method is used,the write-off of an account receivable results in an expense at the time of write-off.

Question 59

Both the allowance method and the direct charge-off method are acceptable for tax purposes.

Question 60

When a bank reconciliation balances,no errors could have been made by the bank or the company.

Question 61

The most liquid of all assets is

A) cash.
B) notes receivable.
C) machinery.
D) accounts receivable.

Question 62

If a promissory note is dishonored,the payee should record interest income.

Question 63

Which of the following would not be considered cash?

A) Postage stamps
B) Currency on hand
C) Money orders from customers
D) Bank deposits

Question 64

The sale or transfer of accounts receivable to raise funds is called

A) discounting.
B) collateralizing.
C) pledging.
D) factoring.

Question 65

When using the allowance method,year-end adjustments for uncollectible accounts expense must be made.

Question 66

The debtor named in a promissory note is called the maker.

Question 67

The holder of a note adjusts for accrued interest by debiting Interest Receivable and crediting Interest Income.

Question 68

The receivable turnover is expressed in terms of

A) times.
B) days.
C) a percentage.
D) dollars.

Question 69

Which of the following topics involves a contingent liability?

A) Installment accounts receivable
B) A factored accounts receivable with recourse
C) Securitization
D) A factored accounts receivable without recourse

Question 70

A company's acceptance of credit cards like Visa is an example of

A) securitization.
B) factoring with recourse.
C) discounting.
D) factoring without recourse.

Question 71

Days' sales uncollected equals 365 days divided by

A) cash.
B) net accounts receivable.
C) net sales.
D) the receivable turnover.

Question 72

A promissory note may be issued for an amount to be determined at a future date.

Question 73

Cash consists of all of the following except

A) deposits in checking accounts.
B) checks from customers.
C) compensating balances.
D) receivables from customers.

Question 74

Which of the following accounts is classified as a short-term financial asset?

A) Inventory
B) Notes Receivable
C) Machinery
D) Prepaid Insurance

Question 75

Under the allowance method,Uncollectible Accounts Expense is recorded when an individual customer defaults.

Question 76

A 60-day note dated December 10 is due on February 10.

Question 77

The maker of a note records Notes Receivable.

Question 78

Which of the following is not classified as a short-term financial asset?

A) Accounts Receivable
B) Notes Receivable
C) Inventory
D) Cash

Question 79

Interest on a nine-month,9 percent,$4,000 note is calculated by multiplying $4,000 * 9/100 * 9/12.

Question 80

The existence of uncollectible accounts is not evidence of poor credit policies.