ACG 3131 Exam 3 Review Questions and Correct Answers
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Course
ACG 3131
Institution
ACG 3131
Cash -Most liquid asset -Standard medium of exchange -Basis for measuring and accounting for all items -Current asset -Examples: coin, currency, available funds on deposit at the bank, money orders, certified checks, cashier's checks, personal checks, bank drafts and savings accounts.
Cash equival...
ACG 3131 Exam 3 Review Questions and
Correct Answers
Cash ✅-Most liquid asset
-Standard medium of exchange
-Basis for measuring and accounting for all items
-Current asset
-Examples: coin, currency, available funds on deposit at the bank, money orders,
certified checks, cashier's checks, personal checks, bank drafts and savings accounts.
Cash equivalents ✅-Short-term, highly liquid investments that are both
A. Readily convertible to cash, and
B. So near their maturity that they present insignificant risk of changes in interest rates.
-Treasury bills, Commercial paper, and Money market funds.
Restricted cash ✅-Companies segregate ______ from "regular" cash.
Examples, restricted for:
(1) plant expansion, (2) retirement of long-term debt, and (3) compensating balances.
-Companies classify ________ either in current assets or long-term assets depending
on date of availability or disbursement
Petty cash and change funds ✅report as cash
Short term paper ✅cash equivalents, investments with maturities of less than 3 months
often combined with cash
Short term paper ✅temporary investments with maturity between 3-12 months
Travel advances ✅receivables assumed to be collected or reduced from salaries
Postage ✅prepaid expenses that can be classified as office inventory
A/R ✅Oral promises of the purchaser to pay for goods and services sold
N/R ✅Written promises to pay a sum of money on a specified future date
Gross Method, Net Method ✅________: discount taken = deduction to sales
__________: discount not taken = show as other revenue
Trade discount ✅Reductions from the list price
Not recognized in the accounting records
Customers are billed net of discounts
, Direct Write-Off ✅-Theoretically deficient:
-No matching.
-Receivable not stated at cash realizable value.
-Not GAAP when material in amount.
Allowance Method ✅-Losses are Estimated:
-Percentage-of-sales.
-Percentage-of-receivables.
-GAAP requires when material in amount.
Sales, receivables ✅• % of _________ = matching expenses to sales (income
statement)
• % of________= net receivable value (balance sheet)
Percentage-of-Sales Approach ✅-Percentage based upon past experience and
anticipate credit policy.
-Achieves proper matching of costs with revenues.
-Existing balance in Allowance account not considered.
DR allowance
CR A/R ✅write off speicific acct
DR A/R
CR Allowance
DR Cash
CR A/R ✅collection of written off
Disposition of accounts ✅Owner may transfer accounts or notes receivables to
another company for cash.
Reasons:
-Competition.
-Sell receivables because money is tight.
-Billing / collection are time-consuming and costly
Sale without recourse ✅Purchaser assumes risk of collection
Transfer is outright sale of receivable
Seller records loss on sale
Seller use Due from Factor (receivable) account to cover discounts, returns, and
allowances
Sale with recourse ✅Seller guarantees payment to purchaser
Financial components approach used to record transfer
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