Accounts Receivable Multiple Choice Questions:-
1. Accounts receivable (A/R) is one of a series of ________ transactions dealing with the billing of a customer for goods and services he/she has ordered.
A. Accountancy
B. Balance sheet
Answer:- A
2. Companies can use their accounts receivable as collateral when obtaining a ________ (asset-based lending) or sell them through factoring.
A. Debt
B. Loan
C. Bond (finance)
D. Credit (finance)
Answer:- B
3. In most business entities this is typically done by generating a ________ and mailing or electronically delivering it to the customer, who in turn must pay it within an established timeframe called “creditor payment terms.”
A. Order (business)
B. Accounts payable
C. Invoice
D. Sales
Answer:- C
4. Pools or portfolios of accounts receivable can be sold in the capital markets through a ________.
A. Securitization
B. Collateralized debt Obligation
C. Bond (finance)
D. Mortgage-backed security
Answer:- A
5. The change in the bad debt provision from year to year is posted to the bad debt expense account in the ________.
A. Cash flow statement
B. Revenue
C. Income statement
D. General ledger
Answer:- C
6. On a company’s ________, accounts receivable is the money owed to that company by entities outside of the company.
A. Equity (finance)
B. Accountancy
C. Asset
D. Balance sheet
Answer:- D
7. The two methods are not mutually exclusive, and some businesses will have a provision for doubtful debts and will also write off specific debts that they know to be bad (for example, if the debtor has gone into ________.)
A. Liquidator (law)
B. Unfair preference
C. Floating charge
D. Liquidation
Answer:- D
8. A firm’s inventory turnover (IT) is 5 times the cost of goods sold (COGS) of $800,000. If the IT is improved to 8 times while the COGS remains the same, a substantial amount of funds is released from or additionally invested in inventory. In fact,
A. $160,000 is released.
B. $100,000 is additionally invested.
C. $60,000 is additionally invested.
D. $60,000 is released.
Answer:- D
9. Ninety-percent of Vogel Bird Seed’s total sales of $600,000 is on credit. If its year-end receivables turnover is 5, the average collection period (based on a 365-day year) and the year-end receivables are, respectively:
A. 365 days and $108,000.
B. 73 days and $120,000.
C. 73 days and $108,000.
D. 81 days and $108,000.
Answer:- C
10. If EOQ = 360 units, order costs are $5 per order, and carrying costs are $.20 per unit, what is the usage in units?
A. 129,600 units
B. 2,592 units
C. 25,920 units
D. 18,720 units
Answer:- B
11. Costs of not carrying enough inventory include:
A. lost sales.
B. customer disappointment.
C. possible worker layoffs.
D. all of these.
Answer:- D
12. Which of the following relationships hold true for safety stock?
A. the greater the risk of running out of stock, the smaller the safety of stock.
B. the larger the opportunity cost of the funds invested in inventory, the larger the safety stock.
C. the greater the uncertainty associated with forecasted demand, the smaller the safety stock.
D. the higher the profit margin per unit, the higher the safety stock necessary.
Answer:- D
13. Increasing the credit period from 30 to 60 days, in response to a similar action taken by all of our competitors, would likely result in:
A. an increase in the average collection period.
B. a decrease in bad debt losses.
C. an increase in sales.
D. higher profits.
Answer:- A
14. The credit policy of Spurling Products is “1.5/10, net 35.” At present 30% of the customers take the discount, 62% pay within the net period, and the rest payment within 45 days of invoice. What would receivables be if all customers took the cash discount?
A. Lower than the present level.
B. No change from the present level.
C. Higher than the present level.
D. Unable to determine without more information.
Answer:- A
15. An increase in the firm’s receivable turnover ratio means that:
A. it is collecting credit sales more quickly than before.
B. cash sales have decreased.
C. it has initiated more liberal credit terms.
D. inventories have increased.
Answer:- A
16. Receiving a required inventory item at the exact time needed.
A. ABC
B. JIT
C. FOB
D. PERT
Answer:- B
17. EOQ is the order quantity that over our planning horizon.
A. minimizes total ordering costs
B. minimizes total carrying costs
C. minimizes total inventory costs
D. the required safety stock
Answer:- C
18. A B2B exchange is an Internet marketplace that matches supply and demand by real-time auction bidding.
A. buyer-to-business
B. business-to-business
C. business-to-buyer
D. buyer-to-buyer
Answer:- B
19. Clark Garrison, Inc. uses an allowance for doubtful accounts. When they write off an uncollectible account receivable, total assets will
A) increase
B) decrease
C) remain the same
D) depends on the amount of the receivable
Answer:- C
20. Clark Garrison, Inc. uses an allowance for doubtful accounts. When they recover a previously written off account receivable, total assets will
A) increase
B) decrease
C) remain the same
D) depends on the amount of the receivable
Answer:- C
21. Brook Logan, Inc. uses the balance sheet approach for estimating bad debt expense. At year end, accounts receivable was valued at $200,000 and the allowance for doubtful accounts had a credit balance of $300. The allowance for doubtful accounts is estimated at 1% of accounts receivable. What is the bad debt expense for the year?
A) $1,700
B) $2,000
C) $2,300
D) some other amount
Answer:- A
22. If net credit sales for a given year are $400,000 and the average accounts receivable are $20,000, What is the accounts receivable turnover?
A) 20
B) 80
C) 200
D) 50
Answer:- A
23. If net credit sales for a given year are $600,000 and the average accounts receivable is $60,000, what is the average days to collect receivables?
A) 10
B) 60
C) 31
D) 36.5
Answer:- D
24. Bath Industries follows a policy of writing off accounts receivable balances when they are more than 120 days old, and all normal collection efforts have failed to result in the collection of the balance owing. On November 30, Bath Industries wrote off accounts receivable of $450 from Felicity’s Feline Care Company. On December 3, Bath Industries received a cheque from Felicity’s in full payment of the overdue account. Bath Industries will record the receipt by:
A) Debiting Cash, Crediting Accounts Receivable.
B) Debiting Cash, Crediting Allowance for Doubtful Accounts.
C) Debiting Cash and Accounts Receivable, Crediting Allowance for Doubtful Accounts and Accounts Receivable.
D) Debiting Cash, Crediting Uncollectible Accounts Expense.
E) None of the above.
Answer:- C
25. Imperial Grocery had net credit sales of $3,150,000 in 1999. It began the year with an accounts receivable balance of $78,200 and ended the year with a balance of $78,700. The accounts receivable turnover is:
A) 40.15 times
B) 40.28 times
C) 40.03 times
D) 9.09 times
E) None of the above.
Answer:- A
26. Catering Company borrowed $100,000 on December 5, 2000, by signing a 90-day note payable with an annual interest of 9 percent. The amount of interest expense on this note for December 2000 is:
A) $750
B) $641.10
C) $665.75
D) $616.44
E) None of the above.
Answer:- B
27. Meat Packers International Company is the sole employer in the only city in a small province. Recent changes in government subsidies have caused Meat Packers to consider relocating to a larger city in a larger province. Mel Mott, the owner of Mel’s Department Store, is concerned as to what will happen to the collectibility of the store’s accounts receivable if Meat Packers relocates and puts most of his customers out of work. This situation is called:
A) A shared characteristic.
B) A concentration of credit risk.
C) The direct write off method.
D) Factoring of Accounts Receivable.
Answer:- B
28. Eastern Trucks sold five trucks to Continental Loggers on November 1 for a total of $175,000. Continental paid $25,000 cash and signed a 12-month note receivable. The face amount of the note was $163,500, which included interest on the note for 12 months. Eastern Trucks prepares to adjust entries annually and plans to amortize straight-line amortization for discount. The adjusting entry made at December 31, by Eastern Trucks year-end, is:
A) Debit Interest Receivable $13,500; Credit Interest Earned $13,500.
B) Debit Interest Receivable $2,250; Credit Interest Earned $2,250.
C) Debit Discount on Notes Receivable $13,500; Credit Interest Earned $13,500.
D) Debit Discount on Notes Receivable $2,250; Credit Interest Earned $2,250.
Answer:- D
29. The due date of a 60-day note receivable signed on April 17 is
A) June 16
B) June 17
C) June 15
D) June 18
E) None of the above.
Answer:- A
30. Accounts receivable are shown on the balance sheet at their net realizable value, which is defined as the balance in the accounts receivable account less the balance in the allowance for doubtful accounts account. When a company writes off an individual’s account as being uncollectible, the net realizable value on the balance sheet:
A) Increases by the amount of the write-off.
B) Decreases by the amount of the write-off.
C) Stays the same because accounts receivable and allowance for doubtful accounts are not affected by the write-off.
D) Stays the same because accounts receivable and allowance for doubtful accounts both decrease by the amount of the write-off.
E) None of the above.
Answer:- D
31. Allowance for doubtful accounts is a contra-asset.
A) True
B) False
Answer:- A
32. The process of classifying accounts receivable by age groups is called a subsidiary ledger.
A) True
B) False
Answer:- B
33. A significant portion of receivables due from a group of customers with a shared characteristic that is likely to be affected in a similar manner by changes in economic conditions is referred to as a concentration of credit risk.
A) True
B) False
Answer:- A
34. A controlling account is a general ledger account that summarizes the content of a specific subsidiary ledger.
A) True
B) False
Answer:- A
35. A method for accounting for uncollectible receivables in which no expense is recognized until individual accounts are determined to be worthless is the income statement method.
A) True
B) False
Answer:- B
36. A person or entity who issues a promissory note is referred to as an issuer.
A) True
B) False
Answer:- B
37. When using the balance sheet method of estimated uncollectible accounts, the amount determined to be uncollectible is the amount that will be reported as bad debts expense on the income statement.
A) True
B) False
Answer:- B
38. Selling a note receivable prior to its maturity date is referred to as the discount on notes receivable.
A) True
B) False
Answer:- B
39. Conservatism avoids overstatement of financial strength and earnings.
A) True
B) False
Answer:- A
40. Which is the appropriate way to disclose the credit card expense on the income statement?
a. as an addition to sales
b. as a selling expense
c. as an administrative expense
d. as part of the cost of goods sold
Answer:- b
41. When a firm writes off a bad debt under the allowance method of accounting for bad debts
a. the realizable value of accounts receivable decreases
b. total net current assets will decrease
c. the cash account will decrease
d. the realizable value of accounts receivable will not change
Answer:- d
42. When a firm collects (recovers) an account receivable that was previously written off under the allowance method of accounting for bad debts,
a. the realizable value of accounts receivable will decrease
b. the cash account will decrease by the full amount of the recovery
c. the allowance account will decrease by the amount collected
d. the realizable value of accounts receivable will increase
Answer:- a
43. The Allowance for Doubtful Accounts account has a year-end credit balance, prior to adjustment, of $450. The bad debts are estimated at 3% of $650,000, the net credit sales. After the appropriate adjusting entry for bad debts, the Allowance for Doubtful Accounts should have a credit balance of
a. $19,500
b. $19,950
c. $19,050
d. $20,400
Answer:- b
44. The Allowance for Doubtful Accounts account has a year-end credit balance, prior to adjustment of $500. The bad debts are estimated at 7% of $60,000 of outstanding accounts receivable. After the appropriate adjusting entry to recognize the bad debt expense, the Allowance for Doubtful Accounts should have a ___________ credit balance.
a. $4,200
b. $3,200
c. $3,700
d. $5,200
Answer:- a
45. Which accounting principle or concept permits the direct write-off method of accounting for bad debts?
a. full-disclosure principle
b. business entity concept
c. matching principle
d. materiality principle
Answer:- d
46. A firm using the allowance method of accounting for bad debts expense has recovered a bad debt that was written off one year ago. The appropriate journal entry to record the recovery would include a
. credit to the Allowance for Doubtful Accounts account
b. debit to the Bad Debt Expense account
c. credit to the Bad Debt Expense account
d. debit to the Allowance for Doubtful Accounts account
Answer:- a
47. On July 18, a firm received from one of its customers, Algo Rythym, a written promise to pay the firm $1,200, at 12% interest, on September 17, for merchandise that Algo had purchased from the firm. Which of the following statements is true?
a. Algo is the payee of the note
b. the firm is the maker of the note
c. the firm is the endorser of the note
d. Algo is the maker of the note
Answer:- d
48. A 90-day, 11%, promissory note that is dated June 13 will have a maturity date of
a. September 11
b. September 10
c. September 9
d. September 8
Answer:- a
49. The interest on a $1,500, 15%, 4-month note is
a. $7.50
b. $75.00
c. $1,575.00
d. $225.00
Answer:- b
50. Which of the following is not true with regard to a $3,000, 14%, 90-day note that is dishonored?
a. an account receivable is charged with the maturity value of the note
b. the Interest Earned account is credited
c. the Notes Receivable account is credited for the maturity value
d. interest may be charged on the outstanding balance
Answer:- c
ACCOUNTS RECEIVABLE Objective Questions Pdf Free Download :-
51. A $10,000, 12%, 60-day note receivable is received on January 12. The note is discounted at 12% on January 18. The maturity value of the note is
a. $10,000
b. $10,100
c. $10,200
d. $11,200
Answer:- c
52. A $10,000, 12%, 60-day note receivable is received on January 12. The note is discounted at 12% on January 18. The proceeds of the note will be
a. $10,000.00
b. $10,016.40
c. $10,184.60
d. $11,200.00
Answer:- b
53. This File is use to enter billing rates and ceilings for each labor category on T&M contracts and to enter labor hour budgets by category for all types of contract.
A. T&M Billing Rates File
B. Labor Category File
C. Contract Workforce File
Answer:- a
54. Select which applies – this Revenue Basis option in Contract Master File, billings must be computed and posted to GL before you compute the revenue.
A. Normal Method
B. Based on Billings
C. Based on GL
Answer:- b
55. This is used to initialize some or all of the year-to-date current year’s billing amounts for CPFF and Fixed Price Contract.
A. Prior Year’s Billable Data
B. Current Year’s Billable Data
C. Billng Master File
Answer:- b
56. True or False. Billings can be computed as frequently as required.
A. True
B. False
Answer:- a
57. This details the timesheet dates, hours, billed amounts, billing rate and labor category of each employee who has charged to a specific contract within a range of timesheet dates. This is also use asa supporting document for T&M billing.
A. Labor Detail by Category
B. T&M Supporting Schedule
C. Certificate of Performance – Labor
Answer:- b
58. All prior year billing amounts for T&M contracts, including billings in the current year, should be entered in Current Year’s Billable Data file. True or False
A. True
B. False
Answer:- b
59. Check which applies if you do not wish the provisional billing rate percentage to appear on the billings for the contract/task.
A. Suppress none
B. Suppress provisional billing rates
C. Suppress all
Answer:- b
60. This is a three-line billing description that will print at the top of the bill. This description includes prime and other contract number, billing address and contract/task name.
A. Header Information
B. Contract Information
C. Budget Information
Answer:- A
61. Where does the address that prints on bills defaults from?
A. GL Control File
B. Contract Control File
C. AR Control File
Answer:- A
62. On June 1, $800 of goods are sold with credit terms of 1/10, n/30. How much should the seller expect to receive if the buyer pays on June 8?
A. $720
B. $784
C. $792
D. $800
Answer:- C
63. On June 1, $800 of goods are sold with credit terms of 1/10, n/30. On June 3 the customer returned $100 of the goods. How much should the seller expect to receive if the buyer pays on June 8?
A. $692
B. $693
C. $700
D. $792
Answer:- B
64. With credit terms of 2/10, n/30, the annual interest rate for paying in 10 days instead of 30 days is closest to
A. 2%
B. 24%
C. 30%
D. 36%
Answer:- D
65. A company estimates that $20,000 of its $500,000 of accounts receivable will be uncollectible. Its Allowance for Doubtful Accounts presently has a credit balance of $8,000. The adjusting entry will include a ___________________ to the Allowance for Doubtful Accounts.
A. debit of $12,000
B. credit of $12,000
C. debit of $28,000
D. credit of $28,000
Answer:- B
66. A company estimates that $20,000 of its $500,000 of accounts receivable will be uncollectible. Its Allowance for Doubtful Accounts presently has a credit balance of $18,000. The adjusting entry will include a ____________________ to Bad Debts Expense.
A. debit of $2,000
B. credit of $2,000
C. debit of $38,000
D. credit of $38,000
Answer:- A
67. Accounts receivable are reported on the balance sheet at their fair market value.
A. True
B. False
Answer:- B
68. Under the allowance method, the write-off of an account receivable leaves the net realizable value of the accounts receivable unchanged.
A. True
B. False
Answer:- A
69. The Allowance for Doubtful Accounts is written off at the end of the fiscal year.
A. True
B. False
Answer:- B
70. The direct write-off method violates the matching principle.
A. True
B. False
Answer:- A
71. Notes receivable are reported at their net realizable value.
A. True
B. False
Answer:- A
72. In determining an optimal credit extension policy, which of the following controllable variables should a company’s financial manager consider?
a. Collection effort, credit standards, and multilateral netting.
b. Credit standards, credit terms, and collection effort.
c. Credit terms, credit standards, and inventory cycle.
d. Credit terms, credit standards, and lead time.
Answer:- B
73. ________ are criteria a company uses to screen credit applicants in order to determine which of its customers should be offered credit and how much.
a. Carrying costs
b. Ordering costs
c. Credit standards
d. Stockout costs
Answer:- C
74. The quality of credit extended to customers is a multidimensional concept involving which of the following?
a. Average collection period.
b. Bad-debt loss ratio.
c. a and b.
d. None of the above.
Answer:- C
75. Which of the following is not a commonly used method to collect payments on past due accounts?
a. Sending notices.
b. Taking legal action.
c. Determining the applicant’s credit worthiness.
d. Employing a collection agency.
Answer:- C
76. Information for evaluating the creditworthiness of a customer is available form a variety of sources, including
a. banks.
b. credit reporting organizations.
c. financial statements submitted by the customer.
d. All of the above.
Answer:- D
77. Which of the following is part of the five C’s of capital?
a. Character, capital and conditions.
b. Capital, conditions, and cash discount.
c. Capital, collateral, and credit period.
d. None of the above.
Answer:- A
78. Manufacturing firms generally hold three types of inventory:
a. raw material, stockout, and finished goods.
b. work-in-process, finished goods, and just-in-time inventory.
c. Just-in-time inventory, raw materials inventory, and finished goods inventory.
d. Raw materials, work-in-process, and finished goods inventories.
Answer:- D
79. Which of the following is not an inventory related cost?
a. Ordering costs.
b. Variable costs.
c. Stockout prices.
d. Carrying costs.
Answer:- B
80. The basic EOQ model makes a number of assumptions, including:
a. fluctuating demand.
b. uncertain lead times.
c. zero lead-time.
d. None of the above.
Answer:- C
81. Probabilistic inventory control models require consideration of the possibility of ________.
a. stock outs
b. seasonal dating
c. an inventory cycle
d. carrying costs
Answer:- A
82. Rich Corporation’s annual carrying costs are 25 percent of the inventory value. The product cost is $85 a unit and they can replenish inventory instantaneously. The cost of placing an order is $55. If Rich Corporation plans to sell 5,000 units next year, what should be their economic order quantity?
a. 5,000 units.
b. 114 units.
c. 81 units.
d. 161 units.
Answer:- D
83. Wing Corporation’s annual carrying costs are 25 percent of the inventory value. The product cost is $65 a unit. The cost of placing an order is $100, and the EOQ is 785 units. If the corporation plans to sell 50,000 units next year, what should be the total annual ordering and carrying costs?
a. $12,748
b. $31,882
c. $6,442
d. $2,506,378
Answer:- A
84. The basic EOQ model assumes that orders to replenish the inventory of an item are filled instantaneously.
a. True
b. False
Answer:- A
85. If the lead-time is constant and known with certainty, the optimal order quantity and the time when an order should be placed are not affected.
a. True.
b. False.
Answer:- B
86. The amount of information a business can collect on a credit application is limited only by the cost consideration.
a. True.
b. False.
Answer:- B
87. Under the Allowance method of accounting for uncollected accounts, an adjusting entry is made each period debiting Bad Debts Expense and crediting
a. Accounts Receivable
b. Allowance for Doubtful Accounts
c. Cash
d. None of these
Answer:- b
88. The dollar amount for the adjusting entry referred to in item 1 could be considered:
a. the actual amount of bad debts expense incurred in the previous period.
b. the total of the accounts actually written off this period.
c. an estimate of the accounts likely to become uncollectible in the near future.
d. the cash paid out to collection agencies to put pressure on non-paying customers.
Answer:- c
89. The estimate of bad debts can be based on either a percentage of net sales, or:
a. a percentage of aged receivables.
b. a percentage of actual bad debts deemed uncollectible last period.
c. a percentage of next month’s anticipated sales.
d. None of these
Answer:- a
90. Johnson has Accounts Receivable of $100,000 and Allowance for Doubtful Accounts of $5,000; its sales this year were $300,000. The cash realizable value of the receivables is:
a. $200,000
b. $100,000
c. $95,000
d. None of these
Answer:- c
91. When an account is written off, Accounts Receivable will be credited. Under the Allowance method, the debit will go to:
a. Bad Debts Expense
b. Allowance for Doubtful Accounts
c. Cash
d. None of these
Answer:- b
92. If a VISA card is accepted from the customer for payment, the debit should be to:
a. Accounts Receivable.
b. Sales.
c. Cash
d. None of these.
Answer:- c
93. Johnson receives a 3-month 6% note from a customer in the amount of $1,000. At maturity, the note will have earned how much interest?
a. $60
b. $5
c. $15
d. None of these
Answer:- c
94. Johnson receives a 60-day note on June 2. The maturity date of the note will be:
a. June 30
b. August 1
c. July 30
d. None of these
Answer:- b
95. Accounts Receivable turnover is calculated by dividing:
a. Net credit Sales by Average Accounts Receivable
b. Average Accounts Receivable by Net Sales
c. Average Accounts Receivable by Allowance for Doubtful Accounts
d. None of these
Answer:- a
96. Johnson computes bad debts as a percentage of sales. If 2% of sales amounts to $2,000 and the Allowance account currently has a balance of $900, the bad debts adjustment should be in the amount of:
a. $2,000
b. $2,900
c. $1100
d. None of these
Answer:- a
97. Warren computes bad debts as a percent of accounts receivable. The ADA account has a credit balance of $900. If an aging reveals that bad debts are estimated at $3000, the bad debts adjustment should be in the amount of:
a. $2100
b. $3900
c. $3000
d. None of these
Answer:- a
98. The adjustment for accruing interest on a note receivable requires a debit to Interest Receivable and a credit to:
a. Notes Receivable
b. Cash
c. Interest Revenue
d. None of these
Answer:- c
99. All of the following statements are true regarding bad debts expense except
a. When using the income statement method, we concentrate on the percentage of net credit sales.
b. When using the balance sheet method, the percentage of net credit sales is not considered.
c. Calculation of bad debts expense is required at least once a year when a company has receivables.
d. All of the above are correct.
Answer:- d
100. All of the following are valid bad debts expense assumptions except
a. percentage of receivables method
b. direct write off method
c. percentage of sales method
d. treat bad debts as unusual items that do not often occur
Answer:- d