Chapter Seven Questions

Chapter Seven Questions - Chapter Seven Questions 1 Define...

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Chapter Seven Questions 1. Define the term accounts receivable. Accounts receivable are promises made by customers to pay for services or products they obtained from companies. 2. What are the main sources of resources for retail or merchandising companies ? Give two examples of merchandising companies. The main sources of resources for retail or merchandising companies are the prices they charge customers for products the customers buy . Examples of merchandising companies include Wal-Mart, J. C. Penney, Sears Roebuck, and The Gap. 3. What are the main sources of resources for manufacturing companies ? Give two examples of manufacturing companies. The main sources of resources for manufacturing companies are the prices they charge customers for products the customers buy . Examples of mamufacturing companies include Ford, General Motors, Gillette, and Raytheon. 4. What is the name of the account in which service companies record revenues? Fees revenue. 5. What is the name of the account in which merchandising companies and manufacturing companies record revenues? Sales. 6. Why do merchandising companies allow customers to return products? Merchandising companies allow customers to return products in order to encourage them to shop at the companies . If customers are allowed to return products, they may be more willing to shop at the companies because their risk of buying unsatifactory products is reduced . Unsatisfactory products can be returned by the customers. 7. What is the name of the account in which the sales prices of returned products are recorded? Sales returns and allowances. 8. What is a sales allowance and why do merchandising companies grant them to customers?
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A sales allowance is a price reduction granted to customers in order to encourage them to keep items with which they are not completely satisfied . For example, a customer who purchased for $10 a product that was slightly damaged could be offered a $2 sales allowance to keep the product . If the product is returned by the customer, the company may have a difficult time selling it because it is damaged. 9. What is the name of the account in which the sales allowances are recorded? Sales returns and allowances. 10. Define the term net sales. Net sales is the dollar amount of the sales prices of products sold to customers and kept by them . Net sales is calculated as follows: sales - sales returns and allowances = net sales. 11. What is the most important use of accounts receivable? The most important use of accounts receivable is to collect cash from customers. 12. Why do companies pledge their accounts receivable? Companies pledge their accounts receivable to financial institutions as collateral for loans . Pledging accounts receivable is one way companies can receive cash for their accounts receivable before customers actually pay the amounts they owe. 13. What does it mean when a company factors its accounts receivable?
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This note was uploaded on 10/09/2011 for the course ACCT 60.201 taught by Professor Monty during the Spring '11 term at UMass Lowell.

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Chapter Seven Questions - Chapter Seven Questions 1 Define...

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