1. An operating cycle:

a. is twelve months or less in length

b. is the average time required for a company to collect its receivables

c. is used to determine current assets when the operating cycle is longer than one year

d. begins with inventory and ends with cash

2. If the balance shwon on a company's bank statement is less than the correct cash balance, and neither the company nor the bank has made any errors, there must be

a. deposits credited by the bank but not yet recorded by the company

b. outstanding checks

c. bank charges not yet recorded by the company

d. deposits in transit

3. A discount given to a customer for purchasing a large volume of merchandise is typically referred to as a

a. quantity discount

b. cash discount

c. trade discount

d. size discount

4. When the direct write-off method of recognizing bad debt expense is used, then entry to write off a specific customer account would

a. increase net income

b. have no effect on net income

c. increase the accounts receivable balance and increase net income

d. decrease the accounts receivable balance and decrease net income

5. when comparing the allowance method of accounting for bad debts with the direct write-off method, which of the following is true?

a. the direct write-off method is exact and also better illustrates the matching principle

b. the allowance method is less exact but it better illustrates the matching principle

c. the direct write-off method is theoretically superior

d. the direct write-off method requires two separate entries

6. when the allowance method of recognizing bad debt expense is used, the entry to record the write-off of a specific uncollectible account would decrease

a. allowance for doubtful accounts

b. net income

c. net realizable value of accounts receivable

d. working capital

7. When the allowance method of recognizing bad debt expense is used, the entries at the time of collection of a small account previously written off would

a. increase net income

b. increase the allowance for doubtful accounts

c. decrease net income

d. decrease the allowance for doubtful accounts

8. A method of estimating bad debts that focuses on the balance sheet rather than the income statement is the allowance method based on

a. direct write off

b. aging the trade receivable accounts

c. credit sales

d. specific accounts determined to be uncollectible

9. In calculating a company's accounts receivable turnover, which of the following sets of factors would be used

a. net income and average accounts receivable

b. average accounts receivable and average total assets

c. average accounts receivable and net credit sales

d. net credit sales and average stockholders' equity

10. Bank statements provide information about all of the following except

a. checks cleared during the period

b. NSF checks

c. bank charges for the period

d. errors made by the company

11. which of the following items would be added to the book balance on a bank reconciliation

a. outstanding checks

b. a check written for $63 entered as $36 in the accounting records

c. interest paid by the bank

d. deposits in transit

12. In preparing a bank reconciliation, interest paid by the bank on the account is

a. added to the bank balance

b. subtracted from the bank balance

c. added to the book balance

d. subtracted from the book balance

14. which of the following best describes the condition that must be present for the recognition of revenue?

a. the revenue must be earned, measurable, and collected

b. the revenue must be earned, measureable, and collectible

c. the revenue must be earned and collectible

d. the revenue must be measurable and collectible

15. Dilla Construction Company's projects extend over several years and collection of receivables is reasonably certain. Each project has a contract that specifies a price and the rights and obligations of all parties. Both the contractor and the customer are expected to fulfill their contractual obligations on each project. Reliable estimates can be made of the extend of progress and cost to complete each project. The method that the company should use to account for construction revenue is

a. installment sales

b. percentage of completion

c. completed contract

d. cost recovery