FM1/FAR03 - Quiz on Accounting for Receivables

What are accounts receivable primarily considered as?

• Financial assets

• Expenses

• Liabilities

• Equity

Which of the following is NOT a category of receivables?

• Trade receivables

• Notes receivable

• Other receivables

• Investment receivables

What is the classification criterion for current assets?

• Expected to be collected within one year

• Expected to be collected beyond one year

• Not expected to be collected

• Only cash equivalents

When are accounts receivable recognized?

• At the end of the accounting period

• When goods are delivered or services are performed

• When a customer places an order

• When cash is received

What does the allowance for doubtful accounts represent?

• A contra-asset account

• An equity account

• A liability account

• An asset account

Which method applies progressively higher percentages to older receivables?

• Risk Classification Method

• Aging of Receivables Method

• Direct Write-off Method

• Percentage of Sales Method

What is the purpose of the allowance for doubtful accounts?

• To increase revenue

• To reduce accounts receivable

• To match bad debt expense with related sales

• To record cash transactions

What is the journal entry for recording bad debt expense?

• Dr. Bad Debt Expense, Cr. Allowance for Doubtful Accounts

• Dr. Cash, Cr. Accounts Receivable

• Dr. Accounts Receivable, Cr. Sales Revenue

• Dr. Allowance for Doubtful Accounts, Cr. Bad Debt Expense

What is the main focus of the percentage of sales method?

• Estimating future cash flows

• Recording cash transactions

• Valuing receivables properly

• Matching expenses to current sales

What does the direct write-off method violate?

• Accrual basis of accounting

• Matching principle

• Revenue recognition principle

• Cost principle