Q: Which of the following is the correct formula for calculating the accounts receivable turnover ratio?

$ \\text{Accounts Receivable Turnover} = \\frac{\\text{Net Credit Sales}}{\\text{Average Accounts Receivable}} $

Question 1

Which of the following best describes the purpose of preparing a bank reconciliation at the end of each month?

Accepted Answer

To ensure that the cash balance per books matches the cash balance per bank statement by identifying and explaining any differences.

Question 2

A company uses the aging of accounts receivable method to estimate bad debts. If the total estimated uncollectible amount is $2,500 and the Allowance for Doubtful Accounts has a credit balance of $400 before adjustment, what is the required adjusting journal entry?

Accepted Answer

Debit Bad Debt Expense $2,100; Credit Allowance for Doubtful Accounts $2,100

Question 3

Which of the following is NOT a key internal control over cash receipts?

Accepted Answer

Allowing the same employee to handle cash and perform bank reconciliations.

Question 4

Jax Supply established a $350 petty cash fund. At the end of the month, the petty cash box contained $85.25 in cash and receipts for $254.75. What is the correct journal entry to replenish the petty cash fund?

Accepted Answer

Debit various expense accounts $254.75; Credit Cash $254.75

Question 5

Which journal entry is required when a previously written-off account is recovered and paid in full?

Accepted Answer

Debit Accounts Receivable; Credit Allowance for Doubtful Accounts, then Debit Cash; Credit Accounts Receivable

Question 6

A company’s bank statement shows a balance of $5,000. Outstanding checks total $1,200, and deposits in transit total $800. What is the adjusted cash balance?

Accepted Answer

$4,600

Question 7

Which of the following is an example of a control weakness in the handling of cash?

Accepted Answer

The same employee is responsible for both opening the mail and recording cash receipts.

Question 8

If a company’s accounts receivable turnover ratio decreases significantly from one year to the next, what does this most likely indicate?

Accepted Answer

The company is taking longer to collect its receivables.

Question 9

Which of the following best describes the direct write-off method for uncollectible accounts?

Accepted Answer

Bad debts are recorded only when an account is determined to be uncollectible.

Question 10

A company’s petty cash fund is established at $400. At month-end, the fund contains $120 in cash and receipts for $270. What is the correct replenishment entry?

Accepted Answer

Debit expenses $270; Credit Cash $270

Question 11

Which of the following is the correct formula for calculating the accounts receivable turnover ratio?

Accepted Answer

$ \text{Accounts Receivable Turnover} = \frac{\text{Net Credit Sales}}{\text{Average Accounts Receivable}} $

Question 12

Which of the following is a limitation of the internal control system?

Accepted Answer

Collusion among employees can circumvent controls.

Question 13

If a company writes off a $1,000 account receivable using the allowance method, what is the effect on total assets and net income?

Accepted Answer

No effect on total assets or net income.

Question 14

Which of the following is the correct journal entry to record the establishment of a $500 petty cash fund?

Accepted Answer

Debit Petty Cash $500; Credit Cash $500

Question 15

A company’s bank reconciliation shows a bank service charge of $25 and an NSF check of $100. What is the correct journal entry to record these items?

Accepted Answer

Debit Bank Service Charges $25, Debit Accounts Receivable $100; Credit Cash $125

Question 16

Which of the following best describes the purpose of the Allowance for Doubtful Accounts?

Accepted Answer

To estimate and match bad debt expense to the period in which related sales occur.

Internal Control of Cash and Receivables: Study Notes and Practice Questions

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