Cash Budgeting and Evaluating Receivables and Inventory
1. Which item is one of the two main criteria in the revenue recognition principle?
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0. Revenue targets for the period have been reached.
0. Earnings process is substantially complete. 0. Necessary documentation has been filed. 0. Substantial evidence of budget approval has been received. |
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1. What is a sales discount?
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1. Net collection after paying sales taxes 1. Amount of cash collected from customers 1. Supplier reduction in inventory purchase cost 1. Incentive for the buyer to pay more quickly |
1. Which items are subtracted in computing NET SALES for the year?
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2. Cash and accounts payable 2. Cost of goods sold and cash collected from customers 2. Sales discounts and sales returns and allowances 2. Interest expense and income tax expense 2. Purchases and inventory shrinkage |
1. With respect to bad debts, what is the allowance method?
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3. Including bad debt expense as a subtraction from the sales amount rather than as a separate expense 3. Recognizing bad debt expense after confirming that a specific customer is not going to pay 3. Including bad debt expense in the computation of cost of goods sold in the period in which the sale takes place 3. Estimating and recognizing bad debt expense in the same period in which the associated sale takes place |
1. Draper Company estimated bad debt expense for the year to be $20,000. Which debit or credit is included in the adjusting entry to record bad debt expense for the year?
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4. CREDIT Bad Debt Expense 4. CREDIT Allowance for Bad Debts 4. CREDIT Cash 4. CREDIT Accounts Receivable 4. DEBIT Allowance for Bad Debts |
1. How is the inventory in a merchandising business different from the inventory in a manufacturing business?
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5. In a merchandising business, there is just one category of inventory; in a manufacturing business there are three categories of inventory. 5. In a manufacturing business, there is just one category of inventory; in a merchandising business there are three categories of inventory. 5. In a merchandising business, there is work-in-process inventory; in a manufacturing business there is no work-in-process inventory. 5. In a merchandising business, final inventory cost includes materials, labor and overhead; in a manufacturing business final inventory cost includes only the original purchase cost of the inventory. |
1. With a perpetual inventory system, how are inventory purchases and sales recorded?
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6. Sales are reported only when cash is collected; no accounts receivable are recorded. 6. Inventory records are updated whenever a purchase or a sale is made. 6. Inventory records are not updated when a sale is made; only the dollar amount of the sale is recorded. 6. Inventory records are not updated when a purchase is made; only the dollar amount of the purchase is recorded. |
1. How is inventory shrinkage reported in the financial statements?
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7. Increase in expenses 7. Increase in liabilities 7. Increase in assets 7. Decrease in liabilities |
1. With a FIFO inventory cost flow assumption, what is assumed about the units that are sold and the units that remain in ending inventory?
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8. Old units sold, old units in ending inventory 8. New units sold, old units in ending inventory 8. Old units sold, new units in ending inventory 8. New units sold, new units in ending inventory |
1. With a LIFO inventory cost flow assumption, what is assumed about the units that are sold and the units that remain in ending inventory?
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9. New units sold, old units in ending inventory 9. Old units sold, old units in ending inventory 9. Old units sold, new units in ending inventory 9. New units sold, new units in ending inventory |
1. Estimating the pattern of the collection of outstanding accounts receivable is key to the cash receipts budgeting process. Which ONE of the following does NOT impact the collection pattern for receivables?
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10. Company size 10. Company industry 10. Company credit policy 10. Company inventory cost flow assumption |
1. What can a company do with the information created from forecasting cash receipts and cash payments months in advance?
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11. Reduce the need to spend money on research and development 11. Efficiently change from a LIFO to a FIFO system 11. Arrange for necessary loans in advance 11. Prepare the statement of cash flows before the year is over |
1. Herriman Company had an average collection period of 35 days in Year 1 and 45 days in Year 2. Which of the following statements is TRUE?
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12. The company waited longer to sell inventory in Year 2 than it did in Year 1. 12. The amount of the company’s accounts payable decreased from Year 1 to Year 2. 12. The amount of the company’s inventory decreased from Year 1 to Year 2. 12. The company’s credit customers waited longer to pay in Year 2 than they did in Year 1. |
1. At the end of Year 1, Vaststrom Company’s bad debt allowance, as a percentage of accounts receivable, was 20%. By the end of Year 2, that percentage was 27%. Given these data, which ONE of the following statements is true with respect to the creditworthiness of the credit customers of Vaststrom Company at the end of Year 2 compared to Year 1?
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13. The average creditworthiness of the credit customers DECLINED during the year. In other words, the quality of the accounts receivable DECLINED during the year. 13. The average creditworthiness of the credit customers IMPROVED during the year. In other words, the quality of the accounts receivable IMPROVED during the year. 13. These data do not allow us to draw ANY conclusions about the average creditworthiness of the Vaststrom Company credit customers. 13. The average creditworthiness of the credit customers STAYED THE SAME during the year. In other words, the quality of the accounts receivable STAYED THE SAME during the year. |
1. Bountiful Company had a number of days’ sales in inventory of 65 days in Year 1 and 50 days in Year 2. Which of the following statements is TRUE?
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14. The company’s credit customers waited longer to pay in Year 2 than they did in Year 1. 14. The company sold inventory more quickly in Year 2 than it did in Year 1. 14. The amount of the company’s accounts payable increased from Year 1 to Year 2. 14. The amount of the company’s accounts receivable decreased from Year 1 to Year 2. |
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