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Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Step by step
Solved in 3 steps
- Which is correct with regards to the effects of restricting credit standards? a. Investment in accounts receivable will likely increase b. An increase in recognition of doubtful accounts expense will probably happen c. Positive impact on the net profit can be noted from decline in the quantity of goods sold d. Quantity of units sold will probably decrease and will result to a lower sales revenueThe percentage-of-receivables basis of estimating uncollectible accounts receivable emphasizes income statement relationships. ignores the existing balance in Allowance for Doubtful Accounts. produces a better estimate of cash realizable value. results in a better matching of expenses with revenues.What are some possible negative signals when the product of the accounts receivable turnover ratio is lower (i.e., fewer times)?
- Which of the following statements are true regarding sales discounts (i.e., discounts customers receive for paying quickly)? I. Net Income differs between the net and gross methods when customers do not pay within the discount period. II. The net and gross methods do not affect the amount or timing of cash collected. III. Customers have to elect in advance whether they will pay in time to take the discount. Group of answer choices: I only II only III only I and II only II and III onlyWhich of the following statements is false regarding the different bases used for the allowance method? O A. Three bases are generally accepted, the percentage of sales, the percentage of receivables, and the direct write-off. O B. Management can choose whichever basis it prefers. o C. If management wishes to emphasize the cash realizable value of receivables it will select the percentage of receivables basis. O D. The company must determine its past experience with bad debt losses regardless of which basis it selects.Which of the following would not result in a reduction of the amount invoiced to a customer when a credit sale is made? A. Quantity discount B. Cash-free discount C. Sales discountD. Two-for-one special
- Clearly explain the advantages and disadvantages of cash on delivery transactions and credit sales. Relate your answers to the management of accounts receivable. b. What steps should be taken by a business to reduce/eliminate excessive inventory? Explain your answer clearly.Question Which of the following changes in credit standards and conditions would cause an improvement in profit? A) Increase in the turnover of accounts receivable B) Decrease in units sold C) Increase in collection expenses D) An increase in the percentage of doubtful accounts receivable.Direction: Read the statements carefully. Write TRUE if the statement is correct. Otherwise, write FALSE. 1. The sum of the time taken from the payment for the purchase of the raw material inventories to the receipt of cash from customers is known as the accounts receivable cycle. 2. It is wise to offer unlimited credit to any potential customer who seeks it to have more sales. 3. One way to establish effective administration of receivables is to systematically review them and that slow payers are sent reminders. 4. An objective of working capital management is to maximize the length of the operating cash cycle. 5. Low inventories imply more frequent ordering. 6. The Economic Order Quantity model is designed to determine how much total inventory a firm needs in a year. _7. Control of working capital through the use of detailed plans in the form of budgets can be very beneficial. 8. One of the 5Cs of Credit is character. It refers to the customer's willingness to meet credit…
- 7.-What are the likely effects on sales of the following change in credit policy: A) Lower the salary level required of credit applicants. A) Decrease the discounts for prompt payment. B) Increase the percentage of uncollectible accounts. C) Decrease sales volumes D) Increase sales volumeHow does collection policy influence sales and the bad debt expenses? How can cash discounts affects the sales volume and the days sales outstanding?A high average collection period may indicate: a. Management's willingness to quickly write-off questionable receivables b. Customers are paying for purchases quickly c. A strict collection policy d. None of these