Chapter 10: Financial instruments in the balance sheet and fair value accounting

Which of the following statements is false? (Difficulty: Moderate)
1. Cash equivalents are short-term investments.
2. Cash equivalents are investments that are subject to a significant risk of changes in value.
3. Cash equivalents are highly liquid investments.
4. Cash equivalents are investments that are readily convertible into known amounts of cash.
Which principle states that positive (debit) balances and negative (credit) balances in accounts receivable cannot under any circumstances be compensated? (Difficulty: Easy)
1. Prudence principle
2. Accrual principle
3. No offsetting principle
4. Matching principle
Which category of accounts receivable corresponds to the following two criteria? (Difficulty: Easy)
o Claim is uncontested by customer;
o The amount that will be collected is doubtful given the financial or economic situation of the debtor
1. Ordinary accounts receivable
2. Doubtful accounts receivable
3. Disputed accounts receivable
4. Uncollectible accounts receivable
In an aged balance, in which order are the balances of each individual customer account reviewed and structured? (Difficulty: Easy)
1. By due date
2. By decreasing amount
3. By increasing amount
4. By alphabetical order
When the collectibility of an amount already included in revenue is uncertain, the uncollectible amount, or the amount in respect of which recovery has ceased to be probable, is preferably: (Difficulty: Moderate)
1. Not recognized.
2. Recognized as an adjustment of the amount of revenue originally recognized.
3. Recorded directly in retained earnings.
4. Recognized as an expense.
With which principle does the allowance method conform? (Difficulty: Moderate)
1. Prudence principle
2. Matching principle
3. No offsetting principle
4. Consistency principle
‘Provision for doubtful accounts’ is a contra-asset account. (Difficulty: Easy)
1. True
2. False
Which method is used for reporting accounts receivable in the financial statements? (Difficulty: Moderate)
4. All of the above methods are used.
Which of the following items is not a specific monetary instrument used to settle sales? (Difficulty: Moderate)
1. A credit sale
2. A bill of exchange
3. A draft
4. A promissory note
How is the ‘receivables turnover’ calculated? (Difficulty: Moderate)
1. Net sales x Average accounts receivable
2. Net sales/Average accounts receivable
3. Net sales + Average accounts receivable
4. Net sales - Average accounts receivable

Chapter 10: Financial instruments in the balance sheet and fair value accounting

Quiz