Deck 4: Payment for Goods and Services: Cash and Accounts Receivable

Question 1

Which of the following items from Kash Kow's bank reconciliation requires an adjusting entry on Kash Kow's books?

A)deposits in transit
B)outstanding checks
C)bank service charges
D)an error made by the bank on the bank statement

Answer 1

C

Question 2

The accountant found that four outstanding checks worth a total of $990 were not on the bank statement.On the bank reconciliation,this amount should be ________.

A)added to the balance per books
B)deducted from the balance per books
C)added to the balance per bank statement
D)deducted from the balance per bank statement

Answer 2

D

Question 3

Making a comparison between the cash balance in the accounting records and on the bank statement is called a bank reconciliation.

Answer 3

True

Question 4

Which of the following is NOT correct when preparing a bank reconciliation?

A)Outstanding checks are added to the balance per books.
B)Deposits in transit are added to the balance per bank statement.
C)Bank service charges are deducted from the balance per books.
D)NSF checks are deducted from the balance per books.

Question 5

According to its August 31 bank statement,X Co's bank account held $10,000.Deposits in transit were $3,000; outstanding checks were $1,000; bank service charges were $10; and a customer's check for $50 was returned NSF.How much cash should X Co report on its August 31 balance sheet?

A)$10,000
B)$12,000
C)$9,940
D)$8,000

Question 6

First Bank charged Team Shirts $100 in services charges for September.On the bank reconciliation,the $100 should be ________.

A)added to the balance per books
B)deducted from the balance per books
C)added to the balance per bank statement
D)deducted from the balance per bank statement

Question 7

X Company used the following items to complete its bank reconciliation for the month of October: ∙ Deposits in transit were $2,500.
∙ Outstanding checks totaled $1,100.
∙ Bank service charges were $10.
∙ The company correctly wrote a check for $192,but mistakenly recorded the check as $129 on its books.The bank cashed the check correctly for $192.
∙ A customer's check for $50 was returned by the bank,NSF.
The $1,100 of outstanding checks should be ________.

A)added to the balance per bank statement
B)deducted from the balance per bank statement
C)added to the balance per books
D)deducted from the balance per books

Question 8

Preparing a bank reconciliation enables a company to ________.

A)locate any errors,whether made by the bank or by the company
B)make adjustments for transactions that have already been recorded in the accounting records
C)make adjustments in the cash accounts
D)update the bank statements

Question 9

X Company used the following items to complete its bank reconciliation for the month of October: ∙ Deposits in transit were $2,500.
∙ Outstanding checks totaled $1,100.
∙ Bank service charges were $10.
∙ The company correctly wrote a check for $192,but mistakenly recorded the check as $129 on its books.The bank cashed the check correctly for $192.
∙ A customer's check for $50 was returned by the bank,NSF.
How should the check for $192 that was recorded as $129 be treated?

A)added to the balance per bank statement
B)deducted from the balance per bank statement
C)added to the balance per books
D)deducted from the balance per books

Question 10

The March bank statement for Jem's Jewelers showed an NSF check for $125.On the bank reconciliation,the amount of the check should be ________.

A)added to the balance per books
B)deducted from the balance per books
C)added to the balance per bank statement
D)deducted from the balance per bank statement

Question 11

Team Shirts deposited a check written for $325.However,the accountant entered the amount as $235 into the books.On the bank statement the amount deposited was correctly entered as $325.On the bank reconciliation,the $90 should be ________.

A)added to the balance per books
B)deducted from the balance per books
C)added to the balance per bank statement
D)deducted from the balance per bank statement

Question 12

Team Shirts made a deposit of $150 on March 31 to its account at First Bank.The deposit did not appear on the March bank statement.On its bank reconciliation,Team Shirts should ________.

A)add $150 to the Team Shirts' balance per books
B)subtract $150 from the Team Shirts' balance per books
C)add $150 to the balance per bank statement
D)subtract $150 from the balance per bank statement

Question 13

The August bank statement for Midway Company showed that the bank had collected a $5,000 note receivable for the company.Midway Company has not recorded the collection.On the bank reconciliation,the $5,000 should be ________.

A)added to the balance per books
B)deducted from the balance per books
C)added to the balance per bank statement
D)deducted from the balance per bank statement

Question 14

A common item on the bank reconciliation is ________.

A)outstanding checks,which are added to the balance per bank statement
B)outstanding checks,which are added to the balance per books
C)deposits in transit,which are added to the balance per bank statement
D)deposits in transit,which are added to the balance per books

Question 15

In preparing a bank reconciliation,outstanding checks are added to the balance per books.

Question 16

Goldilocks is the bookkeeper for Three Bears Company.She prepared the company's bank reconciliation at the end of the year and found only two reconciling items: deposits in transit of $2,850 and outstanding checks of $3,500.She then made an adjusting entry to decrease the company's cash balance for the deposits in transit and increase the company's cash balance for the outstanding checks.Now the company's cash balance is exactly the same as the bank statement balance.As a result of the adjusting entry,the cash shown on Three Bears Company's year-end balance sheet will be ________.

A)too high
B)too low
C)just right
D)The answer cannot be determined from the information given.

Question 17

X Company used the following items to complete its bank reconciliation for the month of October: ∙ Deposits in transit were $2,500.
∙ Outstanding checks totaled $1,100.
∙ Bank service charges were $10.
∙ The company correctly wrote a check for $192,but mistakenly recorded the check as $129 on its books.The bank cashed the check correctly for $192.
∙ A customer's check for $50 was returned by the bank,NSF.
The $2,500 deposit in transit should be ________.

A)added to the balance per bank statement
B)deducted from the balance per bank statement
C)added to the balance per books
D)deducted from the balance per books

Question 18

Comparing a company's cash balance in its accounting records with the bank statement is called ________.

A)a bank reconciliation
B)an external audit
C)an internal audit
D)adjusting the books

Question 19

X Company used the following items to complete its bank reconciliation for the month of October: ∙ Deposits in transit were $2,500.
∙ Outstanding checks totaled $1,100.
∙ Bank service charges were $10.
∙ The company correctly wrote a check for $192,but mistakenly recorded the check as $129 on its books.The bank cashed the check correctly for $192.
∙ A customer's check for $50 was returned by the bank,NSF.
How should the customer's check for $50 that was returned by the bank,NSF,be treated?

A)added to the balance per bank statement
B)deducted from the balance per bank statement
C)added to the balance per books
D)deducted from the balance per books

Question 20

X Company used the following items to complete its bank reconciliation for the month of October: ∙ Deposits in transit were $2,500
∙ Outstanding checks totaled $1,100
∙ Bank service charges were $10
∙ The company correctly wrote a check for $192,but mistakenly recorded the check as $129 on its books.The bank cashed the check correctly for $192.
∙ A customer's check for $50 was returned by the bank,NSF
According to the bank statement,the cash balance was $10,000.How much cash should X Company show on its October 31 balance sheet?

A)$10,000
B)$11,350
C)$11,400
D)$12,500

Question 21

Alpha Company's bookkeeper decided to save time by accepting the cash balance shown on the bank statement as the company's correct ending cash balance each month.Explain to the bookkeeper why a monthly bank reconciliation should be prepared.

Question 22

Put an X in the appropriate box to show how each of these items would appear on a company's bank reconciliation.Put an asterisk (*)next to the items for which the company must record an adjusting entry:

Question 23

Prepare Gloria's Glassware's November bank reconciliation.Below is a list of items that will be included in the reconciliation.The balance on the bank statement was $12,575.The cash balance for Gloria's Glassware was $11,483.
a.Gloria's Glassware correctly deposited a check for $87.The bank recorded the check for $78.
c.Bank service charges for the month were $45.
d.$1,555 worth of checks was outstanding.
e.A deposit of $400 was mailed to the bank,but has not been recorded by the bank.

Question 24

On a bank reconciliation,outstanding checks and NSF checks are deductions from the bank balance.

Question 25

Identify each of the following reconciling items in the bank reconciliation process as being a reconciling item either on the bank's side (Bank)or on the company's side (Book)of the bank reconciliation.
_____ 1.A bank fee for printing new checks
_____ 2.Team Shirts correctly deposited a check for $882.The bank recorded the check as $828.
_____ 3.Outstanding checks
_____ 4.Deposits in transit
_____ 5.Team Shirts deposited a check that it had recorded as $89.00.The bank correctly recorded the check as $98.

Question 26

Put an X in the appropriate box to show how each of these items would appear on a company's bank reconciliation.Put an asterisk (*)next to the items for which the company must record an adjusting entry:

Question 27

If you bank on-line,you can view your bank balance at any time and see exactly how much cash you have available to pay bills.

Question 28

Cash is found on the ________.

A)Income statement
B)Balance sheet
C)Statement of changes in shareholders' equity
D)Statement of operations

Question 29

The following information is available for Ace Electronics for November:
Part A: Prepare a bank reconciliation:
Part B: What amount will Ace Electronics show for cash on its November 30 balance sheet?
Part C: For which item(s)must Ace Electronics prepare an adjusting entry?

Question 30

Part A: Use the following information to complete the June bank reconciliation for ArcCo:
Part B: What amount will ArcCo show for cash on its June 30 balance sheet?
Part C: For which item(s)must ArcCo prepare an adjusting entry?

Question 31

Identify each of the following reconciling items in the bank reconciliation process as being a reconciling item either on the bank's side (Bank)or on the company's side (Book)of the bank reconciliation.
_____ 1.NSF check
_____ 2.Bank service charges
_____ 3.Interest earned on the checking account
_____ 4.Outstanding checks
_____ 5.Deposits in transit

Question 32

Part A: Use the following information to complete the May bank reconciliation for AceCo:
Part B: What amount will AceCo show for cash on its May 31 balance sheet?
Part C: For which item(s)must AceCo prepare an adjusting entry?

Question 33

Put an X in the appropriate box to show how each of these items would appear on a company's bank reconciliation.Put an asterisk (*)next to the items for which the company must record an adjusting entry:

Question 34

Which of these is a cash equivalent?

A)U)S.treasury bills that mature in three months or less
B)a note receivable that matures in six months
C)a note payable due in three months or less
D)accounts receivable due in three months or less

Question 35

What is the purpose of a bank reconciliation?

Question 36

D.Lee was preparing the monthly bank reconciliation for WhackCo when he noticed the bank made an error in the company's favor.How should the error appear on the bank reconciliation? Discuss the ethical issue of not reporting this error to the bank.

Question 37

Cash equivalents are ________.

A)the amounts paid to acquire assets
B)highly liquid investments with maturities of three months or less
C)the total market value of a corporation's stock
D)current assets minus current liabilities

Question 38

"NSF" checks are checks that have been deposited in the bank,but "bounced".

Question 39

Prepare the June bank reconciliation for Low Company using the reconciling items below.The cash balance for Low Company was $8,110.The balance on the bank statement was $12,505.
a.$50 bank service charge
b.$4,889 worth of outstanding checks
c.$118 check for insufficient funds returned by the bank
d.Low Company deposited $576 worth of checks that are not on the bank statement.
e.The bank collected a note receivable for Low Company worth $275.
f.The bank charged Low Company $25 to collect the note receivable.

Question 40

Which of the following methods of accounting for uncollectible accounts matches sales with bad debts expense?

A)direct write-off method
B)allowance method
C)contra-asset method
D)reconciliation method

Question 41

Accounts receivable are ________.

A)current assets
B)current liabilities
C)long-term assets
D)long-term liabilities

Question 42

Cash and cash equivalents are found on both the balance sheet and the statement of cash flows

Question 43

When reporting accounts receivable,the amount reported should be ________.

A)the accounts receivable collected during the period
B)the amount of accounts receivable that a company expects to collect
C)the accounts receivable charged for the current month
D)the amount of accounts receivable minus credit card expense

Question 44

The balance sheet account used to report the amount of accounts receivable that a company does not expect to collect is called ________.

A)net accounts receivable
B)allowance for uncollectible accounts
C)uncollectible accounts expense
D)bad debts expense

Question 45

In the allowance method,the adjustment used to write off an uncollectible account ________.

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

Question 46

Net accounts receivable are ________.

A)accounts receivable plus the allowance for uncollectible accounts
B)accounts receivable minus the allowance for uncollectible accounts
C)accounts receivable minus bad debts expense
D)sales minus bad debts expense

Question 47

In preparing the financial statements for January,the accountant for Team Shirts has compiled the following information: accounts receivable are $5,000; the amount estimated to be uncollectible is 3% of sales for the month; sales for the month were $43,000; and the balance in the allowance for uncollectible accounts is a positive $1,000.Using the sales method,the amount of bad debts expense for January is ________.

A)$290
B)$1,000
C)$1,290
D)$2,290

Question 48

What is the effect on the accounting equation when a company collects an account receivable?

A)Total assets increase,total liabilities increase,and total shareholders' equity stays the same.
B)Total assets stay the same,total liabilities stay the same,and total shareholders' equity stays the same.
C)Total assets decrease,total liabilities stay the same,and total shareholders' equity decreases.
D)Total assets stay the same,total liabilities increases,and total shareholders' equity decreases.

Question 49

Team Shirts had an unadjusted balance in its Allowance for uncollectible accounts of $(875)on August 31.This amount was "left over" at the end of August because not as many accounts were written off as previously anticipated.An aging of accounts receivable at August 31 revealed an estimate of $1,000 for uncollectible accounts.Using the accounts receivable allowance method,bad debts expense for August should be:

A)$125.
B)$275
C)$1,000.
D)$1,875.

Question 50

Which of the following is the contra account that accompanies Accounts receivable?

A)Allowance for uncollectible accounts
B)Sales returns and allowances
C)Bad debts expense
D)Net accounts receivable

Question 51

After the write-off and adjustment,the balance in the allowance for uncollectible accounts should be ________.

A)$450
B)$365
C)$465
D)$550

Question 52

What is the effect on the accounting equation of writing off an uncollectible account of $75?

A)increase assets $75 and decrease liabilities $75
B)decrease assets $75 and decrease liabilities $75
C)decrease assets $75 and increase expense $75
D)no net effect on total assets

Question 53

Which of the following statements is FALSE about the allowance method for uncollectible accounts?

A)Bad debt expense is estimated and matched with sales.
B)Expense is recorded during end of the period adjustments.
C)This method is not acceptable under GAAP.
D)The method is acceptable under GAAP.

Question 54

Which of the following statements is FALSE?

A)The allowance method is a GAAP method.
B)The direct write-off method violates the matching principle.
C)Under the direct write-off method,accounts are expensed when they are identified as uncollectible.
D)Under the allowance method,amounts written off are recorded as bad debts expense.

Question 55

In preparing the financial statements for January,the accountant for Team Shirts has compiled the following information: accounts receivable are $5,000; the amount estimated to be uncollectible is 10% of receivables; sales for the month were $43,000; and the balance in the allowance for uncollectible accounts is a positive $100.Using the accounts receivable allowance method,the amount of bad debts expense for January is ________.

A)$100
B)$500
C)$600
D)$4,300

Question 56

Cash equivalents are found on the ________.

A)Income statement
B)Statement of financial position
C)Statement of changes in shareholders' equity
D)Statement of operations

Question 57

The allowance for uncollectible accounts is a(n)________.

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

Question 58

In 2011,Seven Seas sold $20,000 worth of merchandise on account.Its accountant estimated that $400 of that amount would be uncollectible.In 2011,Saki,a Japanese customer,purchased $500 of merchandise on account from Seven Seas.In 2012,Saki declared bankruptcy while still owing the $500.What is the amount of bad debts expense Seven Seas should report on December 31,2011?

A)$100
B)$400
C)$500
D)$900

Question 59

Cash and cash equivalents is a line item found on the balance sheet that represents the amounts customers owe the company.

Question 60

When Y Company later records the write-off of a specific customer's account receivable,its total assets will ________.

A)increase
B)decrease
C)remain the same
D)The answer cannot be determined from the information given.

Question 61

KayCo began business January 1,2012.During 2012,sales were $650,000.The year-end accounts receivable balance was $104,000.The company estimates that 10% of accounts receivable will be uncollectible.The financial statements for the year ended December 31,2012 will show ________.

A)bad debts expense of $10,400 on the income statement
B)bad debts expense of $9,750 on the income statement
C)net accounts receivable of $94,250 on the balance sheet
D)bad debts expense of $10,400 on the balance sheet

Question 62

Rusk,Inc.had the following balances at December 31,2012,before recording any adjustments: Rusk estimated that $3,000 of the receivables would be uncollectible.The financial statements for the year ended December 31,2012 will show:

A)Bad debts expense of $2,500 on the income statement.
B)Allowance for uncollectible accounts of $(3,000)on the balance sheet.
C)Net accounts receivable of $27,000 on the balance sheet.
D)more than one of the above is correct.

Question 63

Midway Company had a balance of $(500)in its allowance for uncollectible accounts.Aging of its accounts receivable revealed that the allowance should be $(1,400).The amount of bad debts expense for the period should be ________.

A)$500
B)$900
C)$1,400
D)$1,900

Question 64

Lee's Lions had a balance of a positive $200 in its Allowance for uncollectible accounts.Based on an aging of accounts receivable,management estimates that the Allowance for uncollectible accounts balance should be $(2,000).Bad debts expense should be ________.

A)$1,600
B)$1,800
C)$2,000
D)$2,200

Question 65

KayCo began business January 1,2012.During 2012,sales were $650,000.The year-end accounts receivable balance was $104,000.The company estimates that 1.5% of sales will become bad debts.The financial statements for the year ended December 31,2012 will show ________.

A)bad debts expense of $1,560 on the income statement
B)bad debts expense of $9,750 on the income statement
C)net accounts receivable of $94,250 on the income statement
D)bad debts expense of $1,560 on the balance sheet

Question 66

Which accounting principle requires that bad debts expense be recognized in the same period as the sale?

A)entity
B)matching
C)revenue recognition
D)cost

Question 67

The Allowance for uncollectible accounts ________.

A)is subtracted from Sales to calculate Net sales on the income statement
B)is always equal to Bad debts expense for the year
C)is subtracted from Accounts receivable to calculate Net realizable value of accounts receivable
D)is subtracted from Cash on the balance sheet

Question 68

Z Company obtained the following balances from its computerized accounting information system at the end of the year before adjustments: The company estimates that 2% of net sales will be uncollectible.After the correct adjusting entry has been made,bad debts expense for the year will be:

A)$4,000.
B)$1,000.
C)$3,000.
D)$5,000.

Question 69

Z Company obtained the following balances from its computerized accounting information system at the end of the year before adjustments: The company estimates that 2% of net sales will be uncollectible.After the correct adjusting entry has been made,what is the net accounts receivable on the year-end balance sheet?

A)This is a trick question.Accounts receivable appear on the income statement,not the balance sheet.
B)$46,000
C)$45,000
D)$44,000

Question 70

XYZ Company's accounting records on January 1 showed: On January 2,XYZ wrote off an account receivable of $1,000 from Bounder,Inc.As a result of this write-off,the net realizable value of XYZ's accounts receivable will ________.

A)increase
B)decrease
C)remain the same
D)The answer cannot be determined from the information given.

Question 71

The bookkeeper was unable to reconcile the company's checking account,so she changed the company's books to agree with the cash balance on the bank statement.This is an internal control ________.

A)strength
B)weakness
C)principle
D)suggestion

Question 72

The sales method for estimating bad debts is calculated using ________.

A)aging of accounts receivable
B)a percentage of credit sales
C)a percentage of net accounts receivable
D)the current balance in accounts receivable

Question 73

A company has an allowance for uncollectible accounts of $1,000,a positive number,at the end of the year,before the adjusting entry is made to record this year's bad debts expense.The allowance account has a positive balance because ________.

A)the allowance always has a positive balance
B)the allowance created at the end of last year was too small to cover all of the accounts written off this year
C)the allowance created at the end of last year was larger than the total of all of the accounts written off this year
D)the balance in the allowance must always equal bad debts expense for the year.

Question 74

Team Shirts had a balance in its allowance for uncollectible accounts of $(200).Aging the accounts receivable showed that the allowance should be $(1,800).Bad debts expense should be ________.

A)$1,400
B)$1,600
C)$1,800
D)$2,000

Question 75

Team Shirts had a balance of $(700)in its Allowance for uncollectible accounts.Aging of its accounts receivable revealed that the allowance should be $(1,250).The amount of bad debts expense for the period should be ________.

A)$550
B)$700
C)$1,250
D)$1,950

Question 76

Z Company obtained the following balances from its computerized accounting information system at the end of the year before adjustments: The company estimates that 2% of net sales will be uncollectible.After the correct adjusting entry has been made,the allowance for uncollectible accounts will be:

A)$(1,000).
B)$(3,000).
C)$(4,000).
D)$(5,000).

Question 77

Y Company has the following accounting balances at the end of the year before adjustments: The company estimates that 20% of accounts receivable will be uncollectible.After the correct adjusting entry has been made,which of the following is correct about Bad debts expense for the year and Allowance for uncollectible accounts at the end of the year?

A)Bad debts expense will be $4,000 on the income statement and Allowance for uncollectible accounts will be $(5,000)on the balance sheet.
B)Bad debts expense will be $4,000 on the income statement and Allowance for uncollectible accounts will be $(4,000)on the balance sheet.
C)Bad debts expense will be $5,000 on the balance sheet and Allowance for uncollectible accounts will be $(5,000)on the income statement.
D)Bad debts expense will be $5,000 on the income statement and Allowance for uncollectible accounts will be $(5,000)on the balance sheet.

Question 78

X Company has the following accounting balances at the end of the year before adjustments: The company estimates that 2% of net sales will be uncollectible.After the correct adjusting entry has been made,which of the following is correct about Bad debts expense for the year and Allowance for uncollectible accounts at the end of the year?

A)Bad debts expense will be $2,000 on the income statement and Allowance for uncollectible accounts will be $(3,000)on the balance sheet.
B)Bad debts expense will be $3,000 on the income statement and Allowance for uncollectible accounts will be $(2,000)on the balance sheet.
C)Bad debts expense will be $3,000 on the balance sheet and Allowance for uncollectible accounts will be $(3,000)on the income statement.
D)Bad debts expense will be $1,000 on the income statement and Allowance for uncollectible accounts will be $(2,000)on the balance sheet.

Question 79

Z Company obtained the following balances from its computerized accounting information system at the end of the year before adjustments: The company estimates that 2% of net sales will be uncollectible.After the correct adjusting entry has been made,bad debts expense for the year will be:

A)$4,000.
B)$1,000.
C)$3,000.
D)$5,000.

Question 80

The direct write-off method and the allowance method are methods used to adjust the balance in accounts receivable to reflect uncollectible accounts.