Question

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2. Which of the following is false regarding receivables? a) They usually represent one of a company's most liquid assets. b) They are amounts owed by a company to their customers c) They can be one of the larges assets for a company d) They are generally classified as a current asset 3. When a company makes a sale on account a) Accounts Receivable Increases and Cash Increases b) Accounts Receivable Decreases and Cash Increases c) Accounts Receivable Increase and Revenues increase d) Accounts Receivable decrease and revenues decrease 4. Below is select account information for Madison Co. Cash $5,000 Accounts payable $6,000 Service revenue 10,000 Inventory 7,000 Marketing expense 1,000 Equipment 20,000 Common Stock 25,000 Notes payable 12,000 Accounts receivable 8,000 Utilities expense 800 Salaries and wages expenses $3,400 On which financial statements will assets be reported, and for what amount? a) Balance Sheet, $50,000 b) Income Statement, $50,000 c) Balance Sheet, $40,000 d) Statement of Retained Earnings, $40,000 e) Income Statement, $75,000

Answer 1

Answers:

2.

Correct answer is option b = they are amount owed by a company to their customers .

Explanation :

the statement given in option b is false .

Accounts receivables are not amount owed by company to their customers , instead it is amount customers owed to the company.

Account receivables are the amount of credit sales made to customers.

account receivables are one of the company's most liquid asset , are shown as current assets in balance sheet and can be one of the largest assets to the company.

thus all other statements given in option a, c and d are true.

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3.

correct answer is option c = Account receivables increase , revenue increase .

Explanation :

When company makes sales on account, it means sales is made on credit and not on cash.

when on account sale is made,

Account receivables are debited and revenue A/c is credited.

thus on one side credit sale increases account receivables , on the other side it increases revenue.

thus option c is correct option and option d is incorrect.

on account sale does not affect cash , thus option a and b are also incorrect.

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4.

Correct answer is option c = Balance Sheet , $ 40,000

Explanation :

Asset is always reported in balance sheet.

balance sheet have two components . assets and liabilities .

Revenue and expenses are reported in income statement.

Total assets :-

= Cash + inventory + Equipment + Accounts receivables

= $ 5,000 + 7,000 + 20,000 + 8,000

= $ 40,000

thus option c is correct .Balance sheet $ 40,000.

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