ACC120 Study Guide - Final Guide: Income Statement, Accounts Receivable, George Trenholm

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21 Jan 2019

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Problem 1-1a: (a) in deciding to extend credit to a new customer, pierson the accounting is an external user of. Industries information of its customers. (a) pierson industries would focus its attention on the information about the customer"s economic resources and claims to those resources. The terms of the credit they are extending to customers, requires collection in a short period of time. Funds used to pay pierson industries would come from cash on hand. The income statement reports the past performance of the business in terms of its revenue, expenses and profit. In order to evaluate both of these factors, the focus should be on business"s economic resources and claims to those resources in order to determine if the necessary cash is available to meet obligations. As well, standen bank will look at the economic performance of the business that should generate the necessary cash from its operations on an ongoing basis.

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The major advantage of extending credit sales is that it willincrease sales revenue. This is because customers who can't producecash today are still able to buy the good or service of theirchoice.

Extending credit sales is usually a good idea for businesses,but there are a few important factors to consider. First, thebusiness needs sufficient cash flow to account for Cost of GoodsSold (inventory). Customers' payments may delayed, but suppliersstill have to get paid on time. Thus, the business has to be keenlyaware of its cash levels.

This is especially true for businesses that sell large durablegoods at low volumes, like airplane engines. If a customer isunable to pay its debt, this bad debt may have a big affect on cashlevels available for suppliers and investment in otheractivities.

The most important factor to consider when deciding whether tooffer credit sales is the anticipated bad debt expense. This is thepercentage of credit sales that are not ultimately paid. Thebusiness will be forced to eventually write this off against theaccount receivables balance (credit). This may lead to a lowercredit rating. A smaller account receivable balance, which isconsidered liquid, is not good if you wish to borrow against thatbalance (secured borrowing).

Ultimately, a business has to decide whether 1) the increase insales revenue will be greater than the bad debt expense arisingfrom extending credit to customers; and 2) whether the increase insales revenue is sufficient to account for reduced and/or delayedcash flows.

It therefore goes without saying that the credit worthiness ofcustomers should be evaluated before deciding to lend. Backgroundchecks and credit scores should be reviewed. The goal of course tominimize any future bad debt expense.

Multiple Choice:

31. The Balance Sheet will report a company'sfinancial position:

a. For a period of time

b. As of a point in time

c. Either A or B

d. Both A and B

32. In the Customers & Sales center, youcan create a new quote by:

a. Clicking the Sales Invoice icon and selecting New Quote

b. Clicking the Sales icon and selecting New Quote

c. Clicking the Customer Quotes icon and selecting NewQuote
d. Clicking the Quote & Proposals and selecting New Quote

. 33. The Statement of Retained Earnings beginswith the beginning balance followed by:

a. Plus net Income (loss) less dividends

b. Plus net Income (loss) plus investments

c. Plus investments less dividends

d. Plus investments plus net Income (loss) less dividends

34. Gross profit equals net sales minus:

a. Interest income

b. Finance charges

c. Other income

d. Cost of sales

35. The Income Statement's net income or (netloss) is also shown on the:

a. Income statement's revenue section

b. Balance sheet's capital section

c. Departmental gross profit totals

d. Cash balance at the end of the period

36. Financing activities involve:

a. Lending money

b. Owner investments

c. Depreciation

d. Acquiring long-lived assets

37. The Customers icon on the Customers &Sales center allows you to:

a. Create customers

b. View and edit customers

c. Write letters to customers

d. All the above

38. On the Navigation Bar, make the followingselections to record a sales return:

a. Customers & Sales Navigation Center; click on the Creditsand Returns icon and select Make Payment to Customer, select thecustomer, type the invoice number

b. Customers & Sales Navigation Center; click on the Creditsand Returns icon and select New Credit Memo.

c. Customers & Sales Navigation Center; click on the SalesInvoices icon and select New Sales Invoice

d. Customers & Sales Navigation Center; click on the Creditsand Returns icon and select View and Edit Credit Memos

39. The order of activities on the statement ofcash flows is:

a. Operating, investing, and financing

b. Operating, financing, and investing

c. Financing, operating, and investing

d. Financing, investing, and operating

40. The following would be included in theheading of all financial statements:

a. Title of the statement

b. Name of the business

c. Period of time covered by the statement

d. All of the above

emeraldcod140

Multiple Choice:

21. All the following are true regarding Quotesexcept:

a. Quotes post entries to general ledger accounts

b. Quotes can be transferred to create an invoice

c. Quotes can be linked to customer jobs

d. Quotes can be linked to items

22. If a customer was overcharged for theservices, the customer's invoice can be reduced by posting a:

a. Sales invoice

b. Customer receipt

c. Debit memo

d. Credit memo

23. On the statement of cash flows, the cashflows from operating activities section would include:

a. Receipts from the issuance of capital stock

b. Receipts from the sale of investments

c. Payments for the acquisition of investments

d. Net income

24.The Income Statement will include thefollowing accounts:

a. Revenues less Expenses (ordered largest to smallest amount)with Other Expenses listed last
b. Revenues less Expenses (ordered smallest to largest amounts.With Miscellaneous Expenses listed last

c. Revenues less Expenses (ordered in alphabetical order) withOther Expenses listed last

d. Revenues less Expenses (order is not important)

25. The Statement of Cash Flows answers all ofthe following except:

a. Where the receipts come from

b. Where the cash payments were used for

c. What the overall change in cash was

d. If there will be enough cash to pay the currentliabilities

26. On the Navigation Bar, make the followingselections to enter a sales invoice:

a. Customers & Sales Navigation Center, click on theCustomers icon and select View and Edit Customers

b. Customers & Sales Navigation Center, click on the SalesInvoices icon and select Set up Invoice Defaults

c. Tasks; Purchases/Receive Inventory

d. Customers & Sales Navigation Center, click on the SalesInvoices icon and select New Sales Invoice

27. The following would be included in theheading of an income statement:

a. Title of the statement

b. Name of the business

c. Period of time covered by the statement

d. All of the above

. 28. A departmentalized accounting systemprovides information that can be used to:

a. Custom design departmental statements

b. Evaluate profitability and cost effectiveness

c. Evaluate current assets

d. Modify PCA's standard forms

29. In Peachtree, information about a sale isrecorded in the:

a. Purchase window

b. Inventory window

c. Purchases/Receive Inventory window

d. Sales/Invoicing window

30. The sample company, Bellwether GardenSupply, uses which method of posting?

a. Batch posting

b. Real-time posting

c. Cash basis posting

d. Accrual basis posting

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ACC120 Study Guide - Final Guide: Income Statement, Accounts Receivable, George Trenholm

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