Accounts Receivables Quizzer: Part 1
PART I: TRUE OR FALSE (Items 1-20)
Let us start with something simple. True or False questions are the easiest way to check if you really know your definitions. A lot of students get confused with terms like FOB destination and freight collect. Others mix up the gross method and the net method.
This part has 20 questions that will test your basic knowledge. Do not overthink. If you have read the chapter carefully, you will spot the wrong statements right away. Just remember: one wrong word can make a statement false.
Read each statement slowly. Cover the answer with your hand. Trust your memory.
Goal: Score at least 15 out of 20.
PART I: TRUE OR FALSE (20 Items)
1. Trade receivables include both accounts receivable and notes receivable.
ANSWER: TRUE
2. Notes receivable are open accounts arising from the sale of goods and services not supported by promissory notes.
ANSWER: FALSE (Accounts receivable are open accounts; notes are supported by promissory notes)
3. Nontrade receivables expected to be realized within one year, regardless of the operating cycle, are classified as current assets.
ANSWER: TRUE
4. Trade receivables expected to be realized within the normal operating cycle or one year, whichever is longer, are classified as current assets.
ANSWER: TRUE
5. Customers’ credit balances should be offset against debit balances in other customers’ accounts.
ANSWER: FALSE (They are classified as current liabilities and not offset)
6. The direct writeoff method is the required method under IFRS for accounting for doubtful accounts.
ANSWER: FALSE (Allowance method is required)
7. Under the allowance method, the entry to write off worthless accounts is a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable.
ANSWER: TRUE
8. The net method of recording credit sales records both accounts receivable and sales at the gross invoice amount.
ANSWER: FALSE (Net method records at net amount; Gross method records at gross)
9. Sales discount forfeited under the net method is classified as other income.
ANSWER: TRUE
10. FOB destination means ownership of goods is vested in the buyer upon shipment.
ANSWER: FALSE (Ownership is vested upon receipt)
11. Under the gross method, accounts receivable are recorded at the invoice price minus the cash discount.
ANSWER: FALSE (They are recorded at gross invoice price)
12. Recoveries of accounts written off under the allowance method increase the allowance for doubtful accounts.
ANSWER: TRUE
13. Doubtful accounts are always classified as selling expense.
ANSWER: FALSE (Can be admin expense; if credit/collection is under sales manager, it is selling)
14. Special deposits on contract bids are normally classified as current assets.
ANSWER: FALSE (They are normally noncurrent)
15. The allowance for sales discount is a contra asset account.
ANSWER: TRUE
16. Under the direct writeoff method, no entry is made when accounts are only doubtful of collection.
ANSWER: TRUE
17. PFRS 9 requires that accounts receivable shall be measured at fair value after initial recognition.
ANSWER: FALSE (Measured at amortized cost)
18. The amortized cost of accounts receivable is essentially the net realizable value.
ANSWER: TRUE
19. Advances to affiliates are classified as current assets.
ANSWER: FALSE (They are noncurrent investments)
20. The recharging of a customer’s account upon recovery is followed to show evidence of the customer’s attempt to reestablish credit.
ANSWER: TRUE