Master Receivables and Inventory Accounting: Online Quizzes and Practice Tests

Question 1

What is a primary objective of inventory management?

Accepted Answer

Minimize inventory levels to reduce holding costs

Answer

Maximize inventory levels to ensure ample supply for customers

Answer

Prioritize customer satisfaction by fulfilling all orders even if it means holding excess inventory

Answer

Maintain diverse inventory to cater to a wide range of customer preferences and market demands

Question 2

In financial accounting, which method of accounting for bad debts is considered the most conservative, ensuring accurate presentation of accounts receivable on a company's balance sheet?

Accepted Answer

Allowance method

Answer

Direct write-off method

Answer

Percentage of sales method

Answer

Aging of accounts receivable method

Question 3

When the amount of uncollectible accounts can be reliably estimated, which method is appropriate for recording bad debt expense?

Accepted Answer

Allowance method

Answer

Direct write-off method

Answer

Gross method

Answer

Net method

Question 4

Which accounting method for bad debts requires the regular establishment of an allowance account to estimate uncollectible receivables?

Accepted Answer

Allowance method

Answer

Direct write-off method

Answer

Gross method

Answer

Net method

Question 5

Which method recognizes bad debts expense only when a specific customer account is deemed uncollectible?

Accepted Answer

Direct write-off method

Answer

Allowance method

Answer

Gross method

Answer

Net method

Question 6

Which of the following is a key limitation of the gross method for recording uncollectible accounts?

Accepted Answer

Fails to match revenue recognition with expense recognition

Answer

Simplifies accounting procedures

Answer

Prevents overstatement of assets

Answer

Offers tax benefits

Question 7

Compared to the direct write-off method, the allowance method for bad debts provides the advantage of:

Accepted Answer

A more precise estimate of uncollectible accounts

Answer

Easier implementation

Answer

Higher net income reporting

Answer

Mandatory compliance with GAAP

Question 8

Compared to the perpetual inventory system, what is an advantage of the periodic inventory system?

Accepted Answer

Lower implementation and maintenance costs

Answer

Elimination of the need for physical inventory counts

Answer

More accurate inventory records

Answer

Reduced risk of inventory shrinkage

Question 9

Which of the following is a primary drawback of using the allowance method for bad debt accounting?

Accepted Answer

Introduces additional complexity to the accounting process compared to the direct write-off method.

Answer

Enhances the accuracy of matching bad debt expense to the period of sale.

Answer

Mitigates the risk of understating accounts receivable.

Question 10

Under the allowance method, what constitutes an impairment loss on a specific receivable?

Accepted Answer

The difference between the net realizable value and carrying amount of the receivable

Answer

The balance in the Allowance for Doubtful Accounts account

Question 11

How does implementing a just-in-time (JIT) inventory system typically affect an organization's inventory turnover ratio?

Accepted Answer

Substantial increase

Answer

Noticeable decrease

Answer

Minimal change

Answer

Unpredictable variations

Question 12

Under the lower of cost or market (LCM) inventory valuation method, when should a company adjust the carrying value of its inventory downward?

Accepted Answer

When cost is higher than market value, and net realizable value is less than or equal to market value.

Answer

When both cost and market value are lower than net realizable value.

Answer

When market value is higher than cost, and net realizable value is less than cost.

Answer

When both cost and market value are higher than net realizable value.

Question 13

Which bad debt accounting method immediately expenses bad debts when they occur and does not allow for the recovery of previously written-off accounts?

Accepted Answer

Direct write-off method

Answer

Allowance method

Answer

Net method

Answer

Percentage of sales method

Question 14

According to U.S. GAAP, which method is primarily used to account for uncollectible accounts?

Accepted Answer

Allowance Method

Answer

Direct Write-Off Method

Answer

Both Direct Write-Off and Allowance Methods

Question 15

When specific accounts receivable are known to be uncollectible, which method should be used to account for bad debts?

Accepted Answer

Direct write-off method

Answer

Allowance method

Answer

Percentage of sales method

Question 16

In inventory management, the main reason for calculating an entity's inventory turnover ratio is to evaluate its:

Accepted Answer

Effectiveness in managing inventory and overall operations.

Answer

Accuracy of cost of goods sold calculations and inventory valuation methods.

Answer

Level of customer demand and market dominance.

Question 17

Under the direct write-off method, when is bad debt expense recognized?

Accepted Answer

When an account receivable is deemed uncollectible

Answer

When uncollectible accounts receivable are estimated based on past trends

Answer

When cash is collected from customers

Answer

When the allowance for doubtful accounts is adjusted

Question 18

Which method recognizes bad debts only when they actually occur, unlike the allowance method?

Accepted Answer

Direct write-off method

Answer

Allowance method

Answer

Percentage of sales method

Answer

Aging method

Question 19

Under the specific identification method, how are costs associated with inventory matched to revenues?

Accepted Answer

Costs of specific items sold are matched with revenues from the sale of those items in the same period.

Answer

Costs of items in ending inventory are matched with revenues from the current period's sales.

Answer

Costs of items in beginning inventory are matched with revenues from the current period's sales.

Answer

Costs of items manufactured are matched with revenues from the sale of those items in the same period.

Question 20

When estimating uncollectible accounts using the aging of accounts receivable method, which factor is excluded from consideration?

Accepted Answer

Sales volume

Answer

Historical collection experience

Answer

Customer credit ratings

Answer

Economic conditions

Question 21

Under the allowance method, which account is credited when estimating bad debt expense?

Accepted Answer

Allowance for Doubtful Accounts

Answer

Bad Debt Expense

Answer

Sales Revenue

Answer

Cost of Goods Sold

Question 22

In accounting for accounts receivable, what is the main reason for categorizing receivables into current and non-current?

Accepted Answer

To differentiate between receivables expected to be collected within a year and those expected to take longer.

Answer

To identify uncollectible receivables that should be written off.

Answer

To group receivables based on customer or industry.

Answer

To calculate the appropriate allowance for doubtful accounts for uncollectible receivables.

Question 23

When using the allowance method for bad debts, which statement is correct?

Accepted Answer

The allowance for doubtful accounts reduces accounts receivable on the balance sheet.

Answer

Bad debt expense is only recorded when a specific account becomes uncollectible.

Answer

The allowance method results in higher net income than the direct write-off method during periods with high credit sales.

Answer

Each customer's account must be individually assessed for default risk under the allowance method.

Question 24

Which accounting method records uncollectible accounts as an expense only when they are deemed uncollectible?

Accepted Answer

Direct write-off method

Answer

Allowance method

Answer

Gross method

Answer

Percentage of sales method

Question 25

What is a key distinction between perpetual and periodic inventory systems?

Accepted Answer

Perpetual systems update inventory records continuously, while periodic systems update records only at period-end.

Answer

Perpetual systems eliminate the need for physical inventory counts, unlike periodic systems.

Answer

Periodic systems are typically more expensive to implement and maintain than perpetual systems.

Answer

Periodic systems provide real-time visibility into inventory levels, unlike perpetual systems.

Question 26

In financial accounting, accounts receivable refers to:

Accepted Answer

Amounts owed to a company by customers for credit purchases, classified as current assets.

Answer

Amounts owed by a company to suppliers for credit purchases, classified as current liabilities.

Answer

Regular payments made by borrowers to lenders for borrowed funds, not considered current assets.

Answer

Unpaid wages owed by an employer to employees, not classified as accounts receivable.

Question 27

How does the balance of the allowance for doubtful accounts decrease?

Accepted Answer

Writing off an uncollectible account receivable

Answer

Recording sales revenue

Answer

Adjusting the allowance based on an aging analysis

Question 28

Which method is not used to estimate uncollectible accounts?

Accepted Answer

Direct write-off method

Answer

Percentage of sales method

Answer

Aging of accounts receivable method

Answer

Allowance method

Question 29

Inventory shrinkage refers to losses in inventory due to theft, damage, or obsolescence. How is it accounted for?

Accepted Answer

Recorded as an expense in the period it occurs

Answer

Recorded as revenue in the period it occurs

Answer

Corrected in the following period

Answer

Not recorded in the financial statements

Question 30

According to the lower of cost or market (LCM) rule, when should a company record an inventory loss?

Accepted Answer

When the market value of inventory is lower than its cost

Answer

When the cost of inventory is higher than its market value

Answer

When the inventory is damaged or obsolete

Question 31

Under the allowance method, when is bad debts expense recorded?

Accepted Answer

Periodically, based on estimated uncollectible amounts

Answer

When a specific customer account becomes uncollectible

Answer

When the company goes bankrupt

Answer

Only when cash is received from a customer

Question 32

What is the primary purpose of the direct write-off method for bad debts?

Accepted Answer

To simplify accounting procedures

Answer

To provide a more accurate estimate of uncollectible amounts

Answer

To avoid understatement of assets

Answer

To create a reserve for future bad debts

Question 33

What is the primary objective of accounting for accounts receivable?

Accepted Answer

To provide accurate information about the amount and status of the company's receivables

Answer

To minimize the risk of bad debts

Answer

To optimize cash flow

Answer

To comply with GAAP

Question 34

What is the key difference between FIFO and LIFO inventory costing methods?

Accepted Answer

FIFO assumes that the oldest units are sold first, while LIFO assumes the opposite

Answer

FIFO results in higher net income during inflation, while LIFO results in lower net income

Answer

FIFO is more complex to apply than LIFO

Answer

FIFO is only allowed for companies that use a perpetual inventory system

Question 35

A company's inventory turnover ratio has consistently declined over the past three fiscal years. How does this impact its profitability and operational efficiency?

Accepted Answer

Decreased profitability and decreased efficiency

Answer

Increased profitability and decreased efficiency

Answer

Increased profitability and increased efficiency

Answer

No impact on profitability or efficiency

Question 36

Under the LIFO inventory costing method, the cost of goods sold is determined using the cost of:

Accepted Answer

The most recently purchased inventory

Answer

The weighted average of all available inventory

Answer

The earliest purchased inventory

Answer

The sum of all inventory costs

Question 37

Which of the following is not considered a type of inventory holding cost?

Accepted Answer

Processing cost

Answer

Ordering cost

Answer

Carrying cost

Answer

Storage cost

Question 38

The main purpose of the allowance for doubtful accounts is to:

Accepted Answer

Estimate potential uncollectible accounts

Answer

Reduce the carrying value of accounts receivable

Answer

Increase the carrying value of accounts receivable

Answer

Record actual bad debts

Question 39

Which of the following factors does not affect inventory turnover?

Accepted Answer

Production capacity

Answer

Sales volume

Answer

Inventory carrying costs

Answer

Lead time for inventory replenishment

Question 40

Which of the following is a disadvantage of using perpetual inventory systems?

Accepted Answer

Increased labor costs

Answer

Enhanced inventory accuracy

Answer

Streamlined ordering process

Question 41

Under the lower of cost or market rule, if the market value of an inventory item is lower than its acquisition cost, what is the appropriate valuation for the inventory in the financial statements?

Accepted Answer

Market value

Answer

Acquisition cost

Answer

Higher of cost or market

Answer

Replacement cost

Question 42

In the context of inventory costing method selection, which ethical responsibility should accountants prioritize?

Accepted Answer

Ensuring adherence to generally accepted accounting principles (GAAP)

Answer

Maximizing shareholder wealth

Answer

Minimizing tax liability

Question 43

According to GAAP, accounts receivable should be reported at their:

Accepted Answer

Net realizable value

Answer

Historical cost

Answer

Original face value

Answer

Current market value

Question 44

FIFO, LIFO, and Average Cost are examples of inventory costing methods. Which method assumes the most recent purchases are sold first?

Accepted Answer

FIFO

Answer

LIFO

Answer

Average Cost

Answer

Weighted Average Cost

Question 45

The allowance for doubtful accounts is:

Accepted Answer

A contra-asset account

Answer

An expense account

Answer

A liability account

Answer

An owner's equity account

Question 46

The primary financial statement that reports accounts receivable is the:

Accepted Answer

Balance sheet

Answer

Income statement

Answer

Statement of cash flows

Answer

Statement of retained earnings

Question 47

In a perpetual inventory system, inventory is updated:

Accepted Answer

At the time of each purchase and sale

Answer

At the beginning of each accounting period

Answer

At the end of each accounting period

Answer

Annually

Question 48

FIFO assumes that:

Accepted Answer

The oldest inventory acquired is sold first.

Answer

The most recently acquired inventory is sold first.

Answer

The average cost of all inventory is used to determine the cost of goods sold.

Answer

Specific units of inventory are tracked and matched to specific sales.

Question 49

The entry to record the sale of inventory using the LIFO method involves:

Accepted Answer

Crediting Inventory for the cost of goods sold based on the most recent inventory purchased.

Answer

Crediting Inventory for the cost of goods sold based on the oldest inventory purchased.

Answer

Debiting Inventory for the cost of goods sold based on the oldest inventory purchased.

Answer

Debiting Inventory for the cost of goods sold based on the most recent inventory purchased.

Question 50

The purpose of an allowance for doubtful accounts is to:

Accepted Answer

Provide for potential uncollectible accounts.

Answer

Reduce the balance of accounts receivable on the balance sheet.

Answer

Increase the income statement's net income.

Answer

Offset the cost of inventory sold.

Question 51

The entry to write off an uncollectible account involves:

Accepted Answer

Crediting Bad Debt Expense and debiting Allowance for Doubtful Accounts.

Answer

Debiting Accounts Receivable and crediting Allowance for Doubtful Accounts.

Answer

Crediting Accounts Receivable and debiting Allowance for Doubtful Accounts.

Answer

Debiting Bad Debt Expense and crediting Accounts Receivable.

Question 52

Under the weighted-average inventory costing method, which action will lead to a higher per-unit inventory cost at the end of the period?

Accepted Answer

Purchasing units at a cost above the average cost

Answer

Selling units at a price above the average cost

Answer

Purchasing units at a cost below the average cost

Answer

Not purchasing any additional units during the period

Question 53

Within supply chain management, how does effective inventory management contribute to both customer satisfaction and cost optimization?

Accepted Answer

Minimizes stockouts and delays, ensuring timely product delivery and enhancing customer satisfaction.

Accepted Answer

Reduces carrying costs (storage, insurance, handling), contributing to cost optimization and lower operational expenses.

Answer

Maximizes inventory turnover, leading to increased sales and revenue.

Answer

Improves cash flow by reducing capital tied up in inventory.

Question 54

Under the FIFO inventory costing method, which inventory layer is presumed to be sold first?

Accepted Answer

First-in, first-out (FIFO)

Answer

Last-in, first-out (LIFO)

Answer

Weighted average cost

Answer

Specific identification

Question 55

On which financial statement are accounts receivable ordinarily reported?

Accepted Answer

Balance sheet

Answer

Income statement

Answer

Statement of cash flows

Answer

Statement of retained earnings

Question 56

Which characteristic is unique to a perpetual inventory system?

Accepted Answer

Inventory balances are continuously updated.

Answer

Requires periodic physical inventory counts

Answer

Employs estimated inventory balances

Answer

Records inventory transactions only at the end of the accounting period

Question 57

What is the primary rationale behind the lower of cost or market (LCM) rule for inventory valuation?

Accepted Answer

To prevent the overstatement of inventory on the balance sheet

Answer

To ensure that inventory is valued at its historical cost

Answer

To maximize the reported net income

Answer

To reflect the replacement cost of inventory

Question 58

In a period of rising prices, what impact does LIFO inventory costing have on reported financial results?

Accepted Answer

Lower net income and higher inventory values

Answer

Higher net income and lower inventory values

Answer

No impact on net income or inventory values

Answer

Lower gross profit margin and higher ending inventory

Question 59

What is the fundamental purpose of accounting for accounts receivable?

Accepted Answer

To assess the collectibility of receivables

Answer

To document all sales transactions

Answer

To guarantee the collection of all receivables

Answer

To maximize credit sales

Question 60

What is the key distinction between the direct write-off method and the allowance method for accounting for bad debts?

Accepted Answer

Direct write-off expenses bad debts as they occur, while the allowance method estimates bad debts

Answer

Allowance method expenses bad debts as they occur, while direct write-off estimates bad debts

Answer

Both methods estimate bad debts, but allowance method is more conservative

Answer

Both methods expense bad debts as they occur, but direct write-off is more conservative

Question 61

Which inventory costing method aligns most closely with the actual physical flow of inventory?

Accepted Answer

FIFO

Answer

LIFO

Answer

Weighted average cost

Answer

Specific identification

Question 62

When choosing an inventory costing method, which ethical concern should be considered?

Accepted Answer

Potential for earnings manipulation

Answer

Impact on earnings per share

Answer

Consistency in application

Answer

Tax implications

Question 63

First-in, first-out (FIFO) cost flow assumption means that:

Accepted Answer

The oldest inventory items are sold first

Answer

The newest inventory items are sold first

Answer

The average cost of inventory is used

Answer

The standard cost of inventory is used

Question 64

In the LIFO inventory costing method, the sale of inventory primarily affects the:

Accepted Answer

Cost of goods sold

Answer

Beginning inventory

Answer

Ending inventory

Answer

Retained earnings