Exam 9: Cash and Receivables

A compensating balance restricts cash; in effect, it increases the interest on the loan and reduces a company's liquidity.

The general ledger account for Accounts Receivable shows a debit balance of $25,000. Allowance for Uncollectible Accounts has a credit balance of $1,500. Net sales for the year were $250,000. In the past, 3 percent of sales have proved uncollectible, and an aging of accounts receivable resulted in an estimate of $10,000 of uncollectible accounts receivable. Using the percentage of net sales method, the Allowance for Uncollectible Accounts balance (after adjustment) would be

The use of electronic funds transfers makes check writing unnecessary.

Interest on a six-month, 7 percent, $2,000 note is calculated by multiplying $2,000 $\times$ 7/100 $\times$ 6/12.

When an individual uses a debit card to make a purchase, the amount of the purchase is deducted directly from that individual's bank account.

On a bank reconciliation, an NSF check would be deducted from the balance per bank.

A check that is outstanding for two consecutive months will appear only on the first month's bank reconciliation.

Following a lenient credit-granting policy will probably result in fewer defaults by customers.

Companies that experience seasonal cycles of business activity need not manage their cash as carefully as companies whose business is not cyclical.

A note receivable dated May 23 and due in 90 days would be due on

The allowance for uncollectible accounts is similar to accumulated depreciation in that it represents the total of all accounts written off over the years.

Use this information to answer the following question. The general ledger account for Accounts Receivable shows a debit balance of $50,000. Allowance for Uncollectible Accounts has a credit balance of $1,000. Net sales for the year were $494,000. In the past, 2 percent of sales have proved uncollectible, and an aging of accounts receivable accounts results in an estimate of $13,500 of uncollectible accounts. Using the percentage of net sales method, the Allowance for Uncollectible Accounts balance (after adjustment) would be

Which of the following items on a bank reconciliation would require a journal entry on the company's books?

Assume that on December 1, a note which has a face value of $9,000, bears interest at 9 percent for 120 days, received from a customer as an extension of his of past - due account is dishonored. The entry that would be made to record the dishonor (ignoring interest) is:

If the amount of uncollectible accounts expense is overstated at year end,

It is considered unethical to use the estimate for bad debts to purposely manipulate the amount of net income.

A successful credit policy balances an acceptable level of credit losses with the potential for profit from total credit sales.

Cash equivalents are defined as investments that carry a term of less than one year.

The general ledger account for Accounts Receivable shows a debit balance of $40,000. The Allowance for Uncollectible Accounts has a credit balance of $2,000. Net sales for the year were $250,000. In the past, 3 percent of net sales have proved uncollectible. An aging of accounts receivable accounts results in an estimate of $9,000 of uncollectible accounts receivable. Calculate (1) Uncollectible Accounts Expense and (2) the ending balance of the Allowance for Uncollectible Accounts using (a) the percentage of net sales method and (b) the accounts receivable aging method.

Excess cash should be kept in a checking account.