Classification of Accounts Receivable

30 Questions

What is a record of the increases and decreases in a specific asset, liability, equity, revenue, or expense known as?

Account

In accounting, how are accounts receivable classified?

Assets

When a company purchases equipment on credit, what is the journal entry to record this transaction?

Debit to Accounts Payable for $20,100; credit to Equipment for $20,100

Which financial statement is used to ensure that debits equal credits in the accounting records?

Trial balance

What does an increase in account receivables indicate about a company?

Increase in assets

In accounting, what does a credit to an account represent?

Increase in liabilities

What is the internal document prepared by a department manager that lists the merchandise requested to be purchased?

Purchase requisition

Which document does the purchasing department use to place an order with a vendor?

Purchase order

What is the itemized statement of goods prepared by a vendor listing the customer's name, items sold, sales prices, and terms of the sale called?

Invoice

Which of the following documents is typically prepared after the merchandise has been received and inspected?

Receiving report

What type of document lists the merchandise requested to be purchased, but is not the document used by the purchasing department to place orders with vendors?

Purchase requisition

Which document serves as approval for payment after an invoice has been verified?

Invoice approval

In the periodic inventory system, which account is used that is not used in the perpetual inventory system?

Merchandise Inventory

What is the expense resulting from failing to take advantage of cash discounts when using the net method of recording purchases called?

Discounts lost

What does the net method refer to in recording?

An invoice at its net amount (net of any cash discount)

Which of the following is NOT an account used in the periodic inventory system?

Sales

What does the net method of recording purchases involve?

Recording purchases without deducting any cash discounts

Which expense results from not taking advantage of cash discounts in the net method of recording purchases?

Discounts lost

Which of the following is NOT revealed by maintaining separate accounts receivable information for each customer?

Which customers still owe money.

Why do sellers allow customers to use bank (or third-party) credit cards?

To be able to charge customers more due to fees and interest.

What is a primary purpose of maintaining separate accounts receivable information for each customer?

To ensure the company sells on credit only to creditworthy customers.

Why might sellers allow customers to use bank (or third-party) credit cards?

To avoid having to decide who gets credit and how much.

What information does maintaining separate accounts receivable for each customer NOT provide?

Insight into the products each customer purchases.

What is a significant benefit of maintaining separate accounts receivable information for each customer?

To facilitate targeted marketing based on individual purchase histories.

What method is used for accounting for bad debts when a company writes off the debt after it is deemed uncollectible?

Direct write-off method

When a note receivable is honored, what does it mean?

Paid in full

What is the term used when a promissory note's maker fails to pay the amount due when it matures?

Dishonoring a note

Which of the following methods involves estimating and setting aside an allowance for potential bad debts before they occur?

Adjustment method

What is the name given to the process of reducing the recorded value of a promissory note in anticipation of potential losses?

Discounting a note

Which method records bad debts only when they are confirmed as uncollectible, without prior estimation or provisioning?