AC210 Exam Two Conceptual Review

What are revenues?

• Outflows of assets or increases in liabilities from delivering goods

• Inflows of assets or settlements of liabilities from delivering goods or services

• Increases in expenses during core operations

• Amounts paid to creditors

Which of the following satisfies a performance obligation?

• The customer receives physical possession of the asset

• The seller receives full payment

• The customer agrees to return the goods

• The seller agrees to a price reduction

Revenue is recognized over time when which of the following is true?

• The customer controls the asset as the seller creates it

• The asset has alternative uses to the seller

• The customer has no obligation to pay

• The seller has no legal right to payment

Which type of discount is applied after the sale occurs if payment is made within a specified period?

• Trade discount

• Sales discount

• Cash discount

• Purchase Discount

What is the formula for Net Sales Revenue?

• Total Revenue + Sales Returns + Sales Discounts

• Total Revenue - Trade Discounts - Sales Returns

• Total Revenue - Sales Returns - Sales Discounts

• Total Revenue + Sales Returns - Sales Discounts

What do we call customer accounts that are no longer expected to be collected?

• Deferred accounts

• Uncollectible accounts

• Cash accounts

• Trade receivables

Which method is considered more accurate when estimating uncollectible accounts?

• Percentage of Receivable (Balance Sheet Method)

• Percentage of Credit Sales (Income Statement Method)

• Aging Method

• FIFO Method

Answer explanation

The Aging Method is considered more accurate for estimating uncollectible accounts because it analyzes receivables based on the length of time they have been outstanding, providing a more precise assessment of collectibility.

What happens when a customer's account is written off as uncollectible?

• Total assets increase

• Total expenses increase

• The balance of Accounts Receivable decreases

• Net income increases

Answer explanation

When a customer's account is written off as uncollectible, it reduces the balance of Accounts Receivable, reflecting that the company no longer expects to collect that amount.

Trade discounts are reflected on the invoice and are applied before calculating total revenue.

• True

• False

A write-off affects the total assets and total expenses of the company.

• True

• False

Answer explanation

When a company writes off an account as uncollectible, it reduces both Accounts Receivable (an asset) and the Allowance for Uncollectible Accounts (a contra asset). Since both the asset and contra asset accounts decrease by the same amount, the net effect on total assets is zero. Additionally, the write-off does not directly affect expenses because the bad debt expense was already recognized when the company initially estimated uncollectible accounts. Therefore, at the time of the write-off, there is no impact on the income statement (total expenses or net income)