Q: Which formula is used to calculate the Accounts Receivable Turnover ratio?

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

Q: Which of the following is the correct formula for Days Sales Outstanding (DSO)?

$$\text{DSO} = \frac{365}{\text{Accounts Receivable Turnover}}$$

Question 1

Which of the following best describes how 'Accounts Receivable' should be valued on the balance sheet according to GAAP?

Accepted Answer

At Net Realizable Value (NRV)

Question 2

A company has gross accounts receivable of $$50,000 and an allowance for uncollectible accounts of 2$$,000. What is the net realizable value of accounts receivable?

Accepted Answer

$48,000

Question 3

Which of the following is NOT included in 'Cash and Cash Equivalents' on the balance sheet?

Accepted Answer

Equity securities (e.g., stocks)

Question 4

A company estimates that 4% of its $100,000 accounts receivable will be uncollectible. What adjusting entry should be made at year-end using the percentage-of-receivables method?

Accepted Answer

Dr. Uncollectible Account Expense $$4,000; Cr. Allowance for Uncollectible Accounts 4$$,000

Question 5

Which journal entry correctly records the write-off of an uncollectible account under the allowance method?

Accepted Answer

Dr. Allowance for Uncollectible Accounts; Cr. Accounts Receivable

Question 6

A company uses the aging-of-receivables method. If the desired ending balance in the Allowance for Uncollectible Accounts is $$2,900 and the current balance before adjustment is 2$$,200, what is the required adjustment?

Accepted Answer

Dr. Uncollectible Account Expense $$700; Cr. Allowance for Uncollectible Accounts 700$$

Question 7

Which of the following best explains why the direct write-off method is not allowed under GAAP?

Accepted Answer

It does not match expenses with related revenues in the same period

Question 8

A company made credit sales of $20,000 and estimates that 10% will be uncollectible. What is the correct journal entry to record the estimated uncollectibles?

Accepted Answer

Dr. Uncollectible Account Expense $$2,000; Cr. Allowance for Uncollectible Accounts 2$$,000

Question 9

Which formula is used to calculate the Accounts Receivable Turnover ratio?

Accepted Answer

$$	ext{Accounts Receivable Turnover} = \frac{	ext{Net Credit Sales}}{	ext{Average Accounts Receivable, net}}$$

Question 10

If Walmart's net sales for the year are $$611,289 million and the average net accounts receivable is 8$$,107 million, what is the accounts receivable turnover ratio?

Accepted Answer

$$\frac{611,289}{8,107} = 75.4$$

Question 11

Which of the following would increase the Days Sales Outstanding (DSO) ratio for a company?

Accepted Answer

Customers taking longer to pay their invoices

Question 12

A company has the following aging schedule for its accounts receivable: $$50,000 current (2% uncollectible), 30$$,000 1-60 days past due (3%), $$15,000 61-90 days past due (4%), 5$$,000 over 90 days past due (8%). What is the total estimated uncollectible accounts?

Accepted Answer

$$2,900$$

Question 13

Which of the following is the correct formula for Days Sales Outstanding (DSO)?

Accepted Answer

$$	ext{DSO} = \frac{365}{	ext{Accounts Receivable Turnover}}$$

Question 14

A company writes off a $500 account under the allowance method. What is the impact on net income and net accounts receivable?

Accepted Answer

No impact on either net income or net accounts receivable

Question 15

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

Accepted Answer

To estimate and match bad debt expense to the period in which related sales are recognized

Question 16

A company has the following balances at year-end: Gross Accounts Receivable $$120,000, Allowance for Uncollectible Accounts 4$$,000 (credit). If $3,000 of accounts are written off, what is the new balance in the Allowance for Uncollectible Accounts?

Accepted Answer

$$1,000$$

Question 17

Which of the following is a key difference between the percentage-of-sales and aging-of-receivables methods for estimating uncollectible accounts?

Accepted Answer

Percentage-of-sales estimates expense based on current period sales; aging-of-receivables estimates based on outstanding receivables

Question 18

A company issues a $1,000 note receivable on November 1 with a 12% annual interest rate, due January 31. What is the total interest revenue recognized by January 31 (assume 365 days in a year)?

Accepted Answer

$$1,000 	imes 12\% 	imes \frac{91}{365} = 30$

Cash, Receivables, and Revenue: Reporting and Valuation in Financial Accounting

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