These Are All True/False Questions That I Have An Idea About

These Are All Truefalse Questions That I Have An Idea As To Which One

These are all true/false questions that I have an idea as to which ones they are, but I’d just like to get a second opinion just to make sure the answers are correct before submitting it.

1) A company's acceptance of credit cards, like MasterCard, is an example of factoring with recourse. T or F?

2) Following a lenient credit-granting policy will probably result in fewer defaults by customers. T or F?

3) The receivable turnover is expressed in terms of dollars. T or F?

4) Notes receivable and cash are examples of short-term financial assets. T or F?

5) A compensating balance refers to a minimum amount that must remain in a bank account as part of a credit-granting arrangement. T or F?

6) On a bank reconciliation, an NSF check would be deducted from the balance per bank. T or F?

7) On a bank reconciliation, a bank service charge would be deducted from the balance per books. T or F?

8) Because bad debt losses are incurred to generate sales, they should be charged against the sales that they helped generate. T or F?

9) The allowance method of handling bad debts violates the matching principle. T or F?

10) Under the allowance method, Uncollectible Accounts Expense is recorded when an individual customer defaults. T or F?

11) The Allowance for Uncollectible Accounts is a contra-asset account. T or F?

12) The debtor named in a promissory note is called the payee. T or F?

Paper For Above instruction

The set of questions provided pertains to fundamental accounting concepts related to receivables, credit policies, bank reconciliations, and bad debt procedures. These questions aim to test comprehension of accounting principles and practices that govern how businesses record, manage, and report receivables and related transactions. Addressing each question accurately requires a solid understanding of the theoretical underpinnings and practical applications of these financial topics. In this paper, each question will be examined with an explanation of the correct answer, supported by accounting standards and principles.

Question 1: A company's acceptance of credit cards, like MasterCard, is an example of factoring with recourse. True or False?

Acceptance of credit cards by a company is not an example of factoring with recourse. Factoring involves selling accounts receivable to a third party (factor) at a discount, often with recourse provisions. When a company accepts credit cards, it is simply authorizing a third-party credit card company to process payments on behalf of the company, and it receives the funds from the credit card company minus fees. Therefore, this transaction is not factoring but rather a form of payment processing. The correct answer is False.

Question 2: Following a lenient credit-granting policy will probably result in fewer defaults by customers. True or False?

One might think that lenient credit policies could reduce defaults; however, in reality, lenient policies tend to increase the likelihood of defaults as more customers are extended credit, some of whom may be less creditworthy. Conversely, strict policies may decrease defaults but potentially reduce sales. Therefore, the statement is false. The correct answer is False.

Question 3: The receivable turnover is expressed in terms of dollars. True or False?

The receivable turnover ratio measures how many times a company's receivables are collected during a period, and it is expressed as a ratio (e.g., times). It is calculated as net credit sales divided by average accounts receivable, neither in dollars nor in terms of dollars but as a ratio. Hence, the statement is false. The correct answer is False.

Question 4: Notes receivable and cash are examples of short-term financial assets. True or False?

Notes receivable are negotiable instruments that are usually collectible within a year and thus considered short-term financial assets. Cash, by definition, is also a short-term asset. Therefore, this statement is correct. The answer is True.

Question 5: A compensating balance refers to a minimum amount that must remain in a bank account as part of a credit-granting arrangement.

Yes, a compensating balance is the minimum amount that a borrower agrees to keep in a bank account as part of a loan agreement, serving as collateral or guarantee. This is a common financial practice. The statement is true. The answer is True.

Question 6: On a bank reconciliation, an NSF check would be deducted from the balance per bank.

NSF (Non-Sufficient Funds) checks are recorded as adjustments to the company's books, but they are not deducted from the bank's statement balance; instead, they are deducted from the company's book balance. Thus, on a bank reconciliation, NSF checks are usually adjusted against the book balance, not the bank balance. The statement is false. The correct answer is False.

Question 7: On a bank reconciliation, a bank service charge would be deducted from the balance per books.

Bank service charges are known to the company but are not yet recorded in the books. When reconciling, the company deducts fees from the book balance to match the bank statement. Therefore, this statement is true. The answer is True.

Question 8: Because bad debt losses are incurred to generate sales, they should be charged against the sales that they helped generate.

According to the matching principle, bad debt expenses should be matched to the period in which the related sales occurred, making this statement true. The correct answer is True.

Question 9: The allowance method of handling bad debts violates the matching principle.

The allowance method adheres to the matching principle by estimating bad debts and recording expenses in the same period as the sales. Therefore, this statement is false. The correct answer is False.

Question 10: Under the allowance method, Uncollectible Accounts Expense is recorded when an individual customer defaults.

Under the allowance method, bad debts are estimated at the end of each period, and Uncollectible Accounts Expense is recorded periodically, not necessarily when individual accounts default. Thus, this statement is false. The answer is False.

Question 11: The Allowance for Uncollectible Accounts is a contra-asset account.

Yes, the Allowance for Uncollectible Accounts reduces the net value of accounts receivable, making it a contra-asset account. The answer is True.

Question 12: The debtor named in a promissory note is called the payee.

The payee is the person to whom the note is payable — typically the lender or the person who receives the payment. The debtor, who owes the money, is called the maker or the drawer. Therefore, this statement is false. The correct answer is False.

Conclusion

Understanding these fundamental concepts in accounting ensures accurate financial reporting and sound financial decision-making. Correctly identifying the nature of transactions, such as whether acceptance of credit cards constitutes factoring or payment processing, affects how businesses record and interpret their receivables. Recognizing the role of the allowance method in adhering to the matching principle highlights its importance in estimating bad debts systematically. Furthermore, grasping the intricacies of bank reconciliations, such as treatment of NSF checks and bank service charges, safeguards against inaccuracies in financial statements.

Overall, a nuanced understanding of these aspects helps accountable financial management and compliance with accounting standards. Accurate classification and recording of financial transactions bolster the credibility and reliability of financial statements used by management, investors, and auditors alike.

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