Question

Questions:

I) The percentage of completion method is an application of the matching principle: True or False?

II) On which financial statement at what amount are account receivable reported?

a) Balance sheet at the amount owed by customers

b) Income statement at the net uncollectible amount

c) Income statement at the amount written off

d) Balance sheet at the net realizable value

III) Under the allowance method of recognizing uncollectible accounts, the entry to write off an uncollectible account:

a) Increses the allowance for uncollectible accounts

b) Has no effect on the allowance for uncollectible accounts

c) Has no effect on net income

d) Decrease net income

IV) The right the accounts turnover is, the faster receivables are being collected.

True or False?

V) According to GAAP revenue recognition criteria, in order for revenue to be recognized on the income statement , an amount must be either realized, realizable, or earned

True or False?

Answer 1

I) The percentage of completion method is an application of the matching principle.

This statement is true.  The Matching concept states that expenses incurred in an accounting period should be matched with revenues during that period. The matching concept implies that all revenues earned during an accounting year, whether received during that year or not and all costs incurred, whether paid during the year or not should be taken into account, while ascertaining profit or loss for that year.

II) Accounts receivables are reported in the balance sheet at the amount owed by the customers.

Hence,correct option is (a)

Balance in accounts receivable account has nothing to do with the income statement. Only the amount written off from accounts receivable is shown in the Income statement.

III) Under the allowance method of recognizing uncollectible accounts, the entry to write off an uncollectible account increases the allowance for uncollectible accounts.

Hence, correct option is (a).

No expense is recorded in the income statement since this write-off of uncollectible accounts is covered under earlier adjusting entries for bad debts expense.

IV) Higher the accounts turnover, the faster receivables are being collected. This statement is true. Higher the accounts turnover ratio means collection period from debtors is lower, hence receivables are collected faster.

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