Financial Concepts Quiz

What is the primary risk associated with credit sales?

• Increased profits

• Delay in collection and possible non-collection

• Immediate cash flow

• Reduction in list price

What does 'Net Revenues' refer to?

• Total revenues plus returns

• Total revenues less returns, allowances, and discounts

• Total revenues without any deductions

• Total revenues plus allowances and discounts

What is a 'Trade Discount'?

• Increase in list price

• Reduction in list price

• Increase in sales revenue

• Reduction in sales returns

What happens to the account receivable when the cash payment is received?

• It is increased

• It is reduced (credited)

• It remains unchanged

• It is doubled

What is the effect of 'Returns' on sales revenue and account receivable?

• Increases both sales revenue and account receivable

• Reduces both sales revenue and account receivable

• Only affects sales revenue

• Only affects account receivable

What is the purpose of the Allowance for Doubtful Accounts?

• To increase the net income

• To estimate the amount of uncollectible accounts

• To calculate total revenue

• To determine cash flow

What type of account is the Allowance for Doubtful Accounts considered?

• Asset Account

• Liability Account

• Contra Asset Account

• Revenue Account

What happens when a written-off account receivable is collected?

• It is recorded as a new sale

• It is ignored in the financial statements

• It is added back to accounts receivable

• It is deducted from cash

Which method does not follow the matching principle?

• Allowance method

• Direct writeoff method

• Percentage of sales method

• Aging of receivables method

What is the net realizable value of receivables if the accounts receivable is $50,000 and the allowance for doubtful accounts is $2,000?

• $52,000

• $48,000

• $50,000

• $2,000