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- Century 21 Accounting Simulation Answers. Posted on 9-Jan Chapter 14 construct, deliver, and maintain systems projects. A major part of accounting is the measurement of financial data. Estimates of uncollectibility should be recognized so that receivables are reported at the net amount expected to be collected and in order for accounting to provide useful information on a periodic basis. Accounting Chapter 7 1 Preparing an Income Statement. Preparing an Income Statement. Chapter 7 Sameer Hussain Page www. Roger LeRoy Miller, 11 books N. Gregory Mankiw, 8 books Carl S. Warren, 7 books William A. McEachern, 7 books Irvin B. Dlabay, 5 books O Rourke, 5 books James D. Gwartney, 5 books Richard L. Daft, 5 books Jeffrey F. Beatty, 5 books Charles W.
- Lamb, 5 books David P. Twomey, 5 books Chuck. Thomson, the Star logo, and South-Western are trademarks used herein under license. Chapter 7 Work Sheet for a Service Business. The Global Perspective feature explains the use of two measurement systems in the United States: the customary system and the metric system. The United States is one of the few major industrial countries that do not use the metric system exclusively. This question is especially hard to understand because showed record profits. As the controller of the company, you must answer the question. Unlike static PDF South-western Federal Taxation 39th Edition solution manuals or printed answer keys, our experts show you how to solve each problem step-by-step. No need to wait for office hours or assignments to be graded to find out where you took a wrong. Accounts Receivable 19, Fees Earned 19, Accrued fees earned.
- Unit-level activity. Batch-level activity. Total 65 Pts. Print the letter identifying your choice in the Answers. O Divide Responsibility for Related Transactions Good internal control divides responsibility for a transaction or a series of related transactions between two or more individuals or departments This is to ensure that the work of one individual acts as a check on the other o Apply Technological Controls Technology often improves the effectiveness of controls o Perform Regular and Independent. Question 1. State the location of the Himalaya and the seas bounded to India. Identify selected procedures for finding and correcting errors in accounting records. Chapter 7 Financial Statements for a Proprietorship After studying Chapter 7, you will be able to: 1. Define accounting terms related to financial statements for a service business organized as a proprietorship. Main Campus. Overland Park, KS They are non-regulatory guidance developed and used by Certified Public Accountants.
- However, they provide the general guidelines followed by all firms in accounting system development. South Western Accounting Chapter 7 Answers. Chapter 7 Test B Accounting Answers - examenget. Chapter 14 Solutions Accounting 9th Edition Chegg. Century 21 Accounting - Britton-Hecla School. Chapter 3 Answers - SlideShare. Accounting Test Chapter 7 Flashcards - Cram.
- Cash also includes other kinds of accounts that have the general characteristics of demand deposits in that the customer may deposit additional funds at any time and also effectively may withdraw funds at any time without prior notice or penalty. All charges and credits to those accounts are cash receipts or payments to both the entity owning the account and the bank holding it. For example, a bank's granting of a loan by crediting the proceeds to a customer's demand deposit account is a cash payment by the bank and a cash receipt of the customer when the entry is made. Failure of debtors to pay when due b. The effects of prepayments c. Adjustments resulting from defects in the eligibility of the transferred receivables. Cash normally consists of coins and currency on hand, bank deposits, and various kinds of orders for cash such as bank checks, money orders, travelers' checks, demand bills of exchange, bank drafts, and cashiers' checks.
CHAPTER 7 CONTROL AND ACCOUNTING INFORMATION SYSTEMS SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
Balances on deposit in banks which are subject to immediate withdrawal are properly included in cash. Money market funds that provide checking account privileges may be classified as cash. There is some question as to whether deposits not subject to immediate withdrawal are properly included in cash or whether they should be set out separately. Savings accounts, time certificates of deposit, and time deposits fall in this latter category. Unless restrictions on these kinds of deposits are such that they cannot be converted withdrawn within one year or the operating cycle of the entity, whichever is longer, they are properly classified as current assets. At the same time, they may well be presented separately from other cash and the restrictions as to convertibility reported.- A compensating balance is that portion of any demand deposit maintained by a corporation which constitutes support for existing borrowing arrangements of a corporation with a lending institution. A compensating balance representing a legally restricted deposit held against short-term borrowing arrangements should be stated separately among the cash and cash equivalent items. A restricted deposit held as a compensating balance against long-term borrowing arrangements should be separately classified as a noncurrent asset in either the investments or other assets section. Questions Chapter 7 Continued 6. Two methods of recording accounts receivable are: 1. Record receivables and sales gross. Record receivables and sales net. The net method is desirable from a theoretical standpoint because it values the receivable at its net realizable value. In addition, recording the sales at net provides a better assessment of the revenue that was recognized from the sale of the product.
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If the purchasing company fails to take the discount, then the company should reflect this amount as income. The gross method for receivables and sales is used in practice normally because it is expedient and its use does not generally have any significant effect on the presentation of the financial statements. The basic problems that relate to the valuation of receivables are 1 the determination of the face value of the receivable, 2 the probability of future collection of the receivable, and 3 the length of time the receivable will be outstanding. The determination of the face value of the receivable is a function of the trade discount, cash discount, and certain allowance accounts such as the Allowance for Sales Returns and Allowances.Study Guide 7 – Part 3 – Analyzing Income Statement Procedures
The theoretical superiority of the allowance method over the direct write-off method of accounting for bad debts is two-fold. First, since revenue is considered to be recognized at the point of sale on the assumption that the resulting receivables are valid liquid assets merely awaiting collection, periodic income will be overstated to the extent of any receivables that eventually become uncollectible. The proper matching of revenue and expense requires that gross sales in the income statement be partially offset by a charge to bad debt expense that is based on an estimate of the receivables arising from gross sales that will not be converted into cash.- Second, accounts receivable on the balance sheet should be stated at their estimated net realizable value. The allowance method accomplishes this by deducting from gross receivables the allowance for doubtful accounts. The latter is derived from the charges for bad debt expense on the income statement. The percentage-of-sales method. Under this method Bad Debt Expense is debited and Allowance for Doubtful Accounts is credited with a percentage of the current year's credit or total sales. The rate is determined by reference to the relationship between prior years' credit or total sales and actual bad debts arising therefrom. Consideration should also be given to changes in credit policy and current economic conditions.
- Although the rate should theoretically be based on and applied to credit sales, the use of total sales is acceptable if the ratio of credit sales to total sales does not vary significantly from year to year. The percentage-of-sales method of providing for estimated uncollectible receivables is intended to charge bad debt expense to the period in which the corresponding sales are recorded and is, therefore, designed for the preparation of a fair income statement. Due to annually insignificant but cumulatively significant errors in the experience rate which may result in either an excessive or inadequate balance in the allowance account, however, this method may not accurately report accounts receivable in the balance sheet at their estimated net realizable value. This can be prevented by periodically reviewing and, if necessary, adjusting the balance in the allowance account.
- The materiality of any such adjustment would govern its treatment for reporting purposes. The necessity of such adjustments of the allowance account indicates that bad debt expenses have not been accurately matched against related sales. Further, even when the experience rate does not result in an excessive or inadequate balance in the allowance account, this method tends to have a smoothing effect on reported periodic income due to year-to-year differences between the amounts of bad debt write-offs and estimated bad debts.
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Questions Chapter 7 Continued The aging method. With this method each year's debit to the expense account and credit to the allowance account are determined by an evaluation of the collectibility of open accounts receivable at the close of the year. An analysis of the accounts according to their due dates is the usual procedure. For each of the age categories established in the analysis, average percentage rates may be developed on the basis of past experience and applied to the accounts in the respective age categories.Complete Test Bank For Accounting Information Systems, 12e (Romney/Steinbart) | Excellencetutorials
This method may also utilize individual analysis for some accounts, especially those that are considerably past due, in arriving at estimated uncollectible receivables. On the basis of the foregoing analysis the balance in the valuation account is then adjusted to the amount estimated to be uncollectible. This method of providing for uncollectible accounts is quite accurate for purposes of reporting accounts receivable at their estimated net realizable value in the balance sheet. From the standpoint of the income statement, however, the aging method may not match accurately bad debt expenses with the sales which caused them because the charge to bad debt expense is not based on sales.- The accuracy of both the charge to bad debt expense and the reported value of receivables depends on the current estimate of uncollectible accounts. The accuracy of the expense charge, however, is additionally dependent upon the timing of actual write-offs. A major part of accounting is the measurement of financial data. Changes in values should be recognized as soon as they are measurable in objective terms in order for accounting to provide useful information on a periodic basis.
- The very existence of accounts receivable is based on the decision that a credit sale is an objective indication that revenue should be recognized. The alternative is to wait until the debt is paid in cash. If revenue is to be recognized and an asset recorded at the time of a credit sale, the need for fairness in the statements requires that both expenses and the asset be adjusted for the estimated amounts of the asset that experience indicates will not be collected. The argument may be persuasive that the evidence supporting write-offs permits a more accurate decision than that which supports the allowance method. The latter method, however, is "objective" in the sense in which accountants use the term and is justified by the need for fair presentation of receivables and income.
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The direct write-off method is not wholly objective; it requires the use of judgment in determining when an account has become uncollectible. Because estimation of the allowance account balance requires judgment, management could either over-estimate or under-estimate the amount of uncollectible accounts depending on whether a higher or lower earnings number is desired. For example, Sun Trust bank referred to in the chapter was having a very profitable year. By over-estimating the amount of bad debts, Sun Trust could record a higher allowance and expense, thereby reducing income in the current year.- In a subsequent year, when earnings are low, they could under-estimate the allowance, record less expense and get a boost to earnings. The receivable due from Bernstein Company should be written off to an appropriately named loss account and reported in the income statement as part of income from operations. Note that the profession specifically excludes write-offs of receivables from being extraordinary. In this case, classification as an unusual item would seem appropriate. The loss may properly be reduced by the portion of the allowance for doubtful accounts at the end of the preceding year that was allocable to the Bernstein Company account.
- Estimates for doubtful accounts are based on a firm's prior bad debt experience with due consideration given to changes in credit policy and forecasted general or industry business conditions. Questions Chapter 7 Continued The purpose of the allowance method is to anticipate only that amount of bad debt expense which can be reasonably forecasted in the normal course of events; it is not intended to anticipate bad debt losses which are abnormal and nonrecurring in nature. If the direct write-off method is used, the only alternative is to debit Cash and credit a revenue account entitled Uncollectible Amounts Recovered. If the allowance method is used, then the accountant would debit Accounts Receivable and credit the Allowance for Doubtful Accounts. An entry is then made to credit the customer's account and debit Cash upon receipt of the remittance.
- Imputed interest is the interest ascribed or attributed to a situation or circumstance which is void of a stated or otherwise appropriate interest factor. Imputed interest is the result of a process of interest rate estimation called imputation. An interest rate is imputed for notes receivable when 1 no interest rate is stated for the transaction , or 2 the stated interest rate is unreasonable, or 3 the stated face amount of the note is materially different from the current cash price for the same or similar items or from the current market value of the debt instrument.
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In imputing an appropriate interest rate, consideration should be given to the prevailing interest rates for similar instruments of issuers with similar credit ratings, the collateral, and restrictive covenants. The fair value option gives companies the option of using fair value as the measurement basis for financial instruments. The Board believes that fair value measurement for financial instruments provides more relevant and understandable information than historical cost. If companies choose the fair value option, the receivables are recorded at fair value, with unrealized gains or losses reported as part of net income. A company might sell receivables because money is tight and access to normal credit is not available or prohibitively expensive. Also, a company may have to sell its receivables, instead of borrowing, to avoid violating existing lending arrangements. In addition, billing and collection of receivables are often time-consuming and costly.Survey Of Accounting: Instructor's Edition, Author: Carl S. Warren - StudyBlue
The financial components approach is used when receivables are sold but there is continuing involvement by the seller in the receivable. Examples of continuing involvement are recourse provisions or continuing rights to service the receivable. A transfer of receivables should be recorded as a sale when the following three conditions are met: a The transferred asset has been isolated from the transferor put beyond reach of the transferor and its creditors. Questions Chapter 7 Continued Recourse is a guarantee from Moon that if any of the sold receivables are uncollectible, Moon will pay the factor for the amount of the uncollectible account.- This recourse obligation represents continuing involvement by Moon after the sale. Under the financial components model, the estimated fair value of the recourse obligation will be reported as a liability on Moon's balance sheet. Several acceptable solutions are possible depending upon assumptions made as to whether certain items are collectible within the operating cycle or not. The following illustrates one possibility: The accounts receivable turnover ratio is computed by dividing net sales by average net receivables outstanding during the year. This ratio is used to assess the liquidity of the receivables. It measures the number of times, on average, receivables are collected during the period. It provides some indication of the quality of the receivables and how successful the company is in collecting its outstanding receivables. Because the restricted cash cannot be used by Woodlawn to meet current obligations, it should not be reported as a current asset-it should be reported in investments or other assets.
Chapter 7 - Cash And Receivables - Review And Practice - Brief Exercises - Page 363: BE7-9
Thus, although this item has cash in its label, it should not be reflected in liquidity measures, such as the current or acid-test ratios.MCQ Questions For Class 11 Accountancy Chapter 7 Depreciation, Provisions And Reserves With Answers
DescriptionItems considered cash. Items considered cash. Cash equivalents definition. Bank overdrafts. Cash equivalents. Classification of receivables. Items considered trade receivables. Trade discount uses. Sales discounts. Valuation of receivables. Percentage-of-receivables approach. Percentage-of-sales method. Reporting notes receivable. Stated interest rate vs. Classification of notes receivable. Recourse liability. Buying receivables with recourse. Selling receivables with recourse. Computing receivables turnover. DescriptionIdentification of cash items. Identification of cash items. Classification of travel advance. Items included as cash. Classification of post-dated checks. Classification of postage stamps. Compensating balance definition. Classification of cash restricted for plant expansion. Cash equivalent definition. Classification of bank overdraft. Classification of compensating balances. Definition of trade receivables. Identification of trade receivables.Ratio Analysis MCQs | Multiple Choice Questions And Answers | Accounting Ratio MCQs
Presentation of nontrade receivables. Cash discount definition. P DescriptionTrade discount uses. Classification of sales discounts. Reasons for trade discounts. Accounting for cash discounts and trade discounts. Theoretically correct approach for cash discounts. Accounts receivable valuation problems. Reason allowance method is preferable.Answer Key Chapter 7 - Principles Of Accounting, Volume 2: Managerial Accounting | OpenStax
Allowance method concept. Accounting for bad debts and earnings management. Recording bad debt expense. Journal entry for writing off an account. Journal entry for collection of an account previously written off. Valuation of short-term receivables. Bad debt provision and the matching concept. Bad debts as a percentage of sales. Bad debts as a percentage of receivables. Financial statement effect of a note recorded incorrectly. Imputed interest description. Reason a company sells receivables. Transfer of receivables as a sale. Definition of selling receivables with recourse. Factoring accounts receivable without recourse. Classification of accounts and notes receivable. Transfer of receivables with recourse. Accounts receivable turnover ratio. Items included in accounts receivable on balance sheet. Days to collect accounts receivable calculation. Reason for accounts receivable turnover increase. Balance per bank reconciling item.- Entry to replenish Petty Cash. Classification of bank service charges. Treatment of bank credits on bank reconciliation. These questions also appear in the Problem-Solving Survival Guide. These questions also appear in the Study Guide. DescriptionCalculate cash balance. Calculate effective interest on loan with required compensatory balance. Reporting cash. Cash and cash equivalents. Determine effective annual interest rate of sales discount. Calculate sales revenue using net method. Entry for credit sale using gross method. Entry for credit sale using net method. Calculate ending allowance for doubtful accounts balance. Calculate bad debt expense. Calculate balance of accounts receivable. Calculate net realizable value of accounts receivable.
- Calculate bad debt expense using aging of receivables. Calculate bad debt expense using percent of sales. Calculate bad debt expense using percent of receivables. Valuation of accounts receivable. Calculation of bad debt expense. Calculate Allowance for Doubtful Accounts balance. Determine appropriate interest rate for a zero-interest-bearing note. Calculate present value of a zero-interest-bearing note. Calculation of sales revenue. Entry for exchange of goods for note receivable. Calculate amount of interest. Calculate interest revenue on a zero-interest-bearing note.
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