Financial Accounting Quiz: Sales On Account And Collections
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Sales On Account And CollectionsQuestion 1 of 20

Xero Corp's policy is to estimate bad debt expense at 0.5% of net sales. The company's unadjusted trial balance shows Sales Revenue of $5,200,000, Sales Returns of $150,000, and Sales Discounts of $50,000. The Allowance for Doubtful Accounts has a credit balance of $4,000 before adjustment.

Based on the passage, what is the reported Net Realizable Value of Accounts Receivable on the year-end balance sheet if the Accounts Receivable balance is $450,000?

$421,000
$425,000
$429,000
$446,000
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Financial Accounting Quiz

Financial Accounting Quiz: Sales On Account And Collections

Practice Sales On Account And Collections in Financial Accounting with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Sales On Account And Collections, giving you a quick way to practice the rules, question types, and explanations that matter most for Financial Accounting.

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Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

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Question 1

Xero Corp's policy is to estimate bad debt expense at 0.5% of net sales. The company's unadjusted trial balance shows Sales Revenue of $5,200,000, Sales Returns of $150,000, and Sales Discounts of $50,000. The Allowance for Doubtful Accounts has a credit balance of $4,000 before adjustment.

Based on the passage, what is the reported Net Realizable Value of Accounts Receivable on the year-end balance sheet if the Accounts Receivable balance is $450,000?

  1. $421,000 (correct answer)
  2. $425,000
  3. $429,000
  4. $446,000
Explanation: First, calculate Net Sales: (5,200,000−5,200,000 - 150,000 - 50,000=50,000 = 5,000,000). Second, calculate Bad Debt Expense: (5,000,000×0.005=5,000,000 \times 0.005 = 25,000). Third, calculate the ending Allowance balance by adding the current period's expense to the beginning balance: (4,000+4,000 + 25,000 = 29,000\). Finally, calculate Net Realizable Value: \(450,000 (A/R) - 29,000(EndingAllowance)=29,000 (Ending Allowance) = 421,000).

Question 2

On September 1, Riverside Corp. sold merchandise for $25,000 on account with terms 3/15, n/60. On September 12, the customer returned $3,000 of defective merchandise. On September 14, the customer paid the remaining balance. What is the total amount of cash Riverside received from this customer?

  1. $21,340 (correct answer)
  2. $21,910
  3. $22,000
  4. $24,250
Explanation: After the $3,000 return, the customer owes $22,000. Since payment was made on September 14 (13 days after the sale), it's within the 15-day discount period. The 3% discount applies to the net amount owed: $22,000 × 3% = $660 discount. Cash received = $22,000 - $660 = $21,340. Choice B incorrectly calculates the discount on the original 25,000amount(25,000 amount (25,000 × 3% = $750, then $25,000 - $3,000 - $750 = $21,250, but this doesn't match B either, so B likely represents another calculation error). Choice C ignores the discount entirely. Choice D applies the discount to the original amount before the return.

Question 3

During its first year of operations, a company had credit sales of $400,000 and collected $320,000 from customers. At year-end, it recorded bad debt expense of $8,000. There were no write-offs during the year. What is the net realizable value of its accounts receivable at year-end?

  1. $72,000 (correct answer)
  2. $80,000
  3. $64,000
  4. $88,000
Explanation: First, calculate the ending balance in Accounts Receivable: (400,000(CreditSales)−400,000 (Credit Sales) - 320,000 (Collections) = 80,000\). Since this is the first year of operations and there were no write-offs, the ending balance in the Allowance for Doubtful Accounts is equal to the bad debt expense recorded for the year, which is 8,000. Net Realizable Value is calculated as Accounts Receivable minus the Allowance for Doubtful Accounts: ($80,000 - $8,000 = $72,000).

Question 4

A company uses the allowance method. In its second year of operations, it wrote off $15,000 of specific accounts as uncollectible and recorded $20,000 of bad debt expense. The year-end balance in the Allowance for Doubtful Accounts was $8,000. What was the beginning balance in the Allowance for Doubtful Accounts?

  1. $3,000 credit (correct answer)
  2. $3,000 debit
  3. $13,000 credit
  4. $13,000 debit
Explanation: The relationship in the Allowance for Doubtful Accounts is: Beginning Balance - Write-offs + Bad Debt Expense = Ending Balance. We need to solve for the Beginning Balance. Let X be the beginning balance. The equation is: (X - 15,000+15,000 + 20,000 = 8,000\). This simplifies to \(X + 5,000 = 8,000\). Solving for X gives \(8,000 - 5,000=5,000 = 3,000). Since the ending balance is a normal credit balance, and the inputs resulted in a positive number, the beginning balance must have been a $3,000 credit.

Question 5

A company had total sales of $2,000,000, of which 75% were on credit. The beginning balance of Accounts Receivable was $180,000, and the ending balance was $230,000. The company wrote off $25,000 of uncollectible accounts during the year. What was the total amount of cash collected from customers during the year?

  1. $1,425,000 (correct answer)
  2. $1,450,000
  3. $1,475,000
  4. $1,500,000
Explanation: First, calculate the credit sales for the year: (2,000,000×0.75=2,000,000 \times 0.75 = 1,500,000). Next, use the Accounts Receivable T-account reconciliation formula: Beginning A/R + Credit Sales - Write-offs - Collections = Ending A/R. Plugging in the values: (180,000+180,000 + 1,500,000 - 25,000−Collections=25,000 - Collections = 230,000). Simplify: (1,655,000−Collections=1,655,000 - Collections = 230,000). Solve for Collections: (Collections = 1,655,000−1,655,000 - 230,000 = $1,425,000).

Question 6

The Allowance for Doubtful Accounts had a beginning credit balance of $12,000 and an ending credit balance of $14,000. During the year, accounts totaling $7,000 were written off as uncollectible. There were no recoveries of accounts previously written off. What was the Bad Debt Expense for the year?

  1. $2,000
  2. $9,000 (correct answer)
  3. $7,000
  4. $5,000
Explanation: To solve for Bad Debt Expense, analyze the changes in the Allowance for Doubtful Accounts. The formula is: Beginning Balance - Write-offs + Bad Debt Expense = Ending Balance. Plugging in the numbers: (12,000−12,000 - 7,000 + Expense = 14,000\). This simplifies to \(5,000 + Expense = 14,000\). Solving for Expense: \(14,000 - 5,000=5,000 = 9,000).

Question 7

On May 1, a company sold merchandise for $10,000 on account with terms 2/10, n/30. On May 4, the customer returned merchandise with a sales value of $2,000. On May 9, the company received the full amount due from the customer. What amount of cash did the company receive?

  1. $8,000
  2. $7,840 (correct answer)
  3. $9,800
  4. $7,800
Explanation: The correct calculation involves three steps. First, determine the accounts receivable balance after the return: (10,000(initialsale)−10,000 (initial sale) - 2,000 (return) = 8,000\). Second, determine if the payment is within the discount period. The sale was on May 1 with terms 2/10, n/30, so the discount period ends on May 11. The payment on May 9 is within this period. Third, calculate the cash received by applying the 2% discount to the remaining balance: \(8,000 \times (1 - 0.02) = 8,000×0.98=8,000 \times 0.98 = 7,840).

Question 8

A company using the allowance method wrote off a customer's $4,000 account as uncollectible. Six months later, the customer unexpectedly paid the entire amount. What is the net effect of recording this recovery (both reinstatement and cash collection) on the ending balances of Accounts Receivable and the Allowance for Doubtful Accounts?

  1. Accounts Receivable increases by $4,000; Allowance for Doubtful Accounts is unchanged.
  2. Accounts Receivable is unchanged; Allowance for Doubtful Accounts is unchanged.
  3. Accounts Receivable is unchanged; Allowance for Doubtful Accounts increases by $4,000. (correct answer)
  4. Accounts Receivable decreases by $4,000; Allowance for Doubtful Accounts increases by $4,000.
Explanation: The recovery of a previously written-off account requires two journal entries. First, the write-off is reversed (reinstated): Debit Accounts Receivable for $4,000 and Credit Allowance for Doubtful Accounts for $4,000. Second, the cash collection is recorded: Debit Cash for $4,000 and Credit Accounts Receivable for $4,000. The net effect on Accounts Receivable is an increase of $4,000 and a decrease of $4,000, resulting in zero net change. The net effect on the Allowance for Doubtful Accounts is an increase of $4,000.

Question 9

A company that uses the allowance method for uncollectible accounts writes off a specific customer's $10,000 account receivable. Which of the following is an immediate result of recording this write-off?

  1. Net income decreases by $10,000.
  2. The net realizable value of accounts receivable is unchanged. (correct answer)
  3. Total assets decrease by $10,000.
  4. The allowance for doubtful accounts balance increases by $10,000.
Explanation: The journal entry to write off an account is a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable. This entry reduces both the gross Accounts Receivable balance and the contra-asset Allowance for Doubtful Accounts by the same amount ($10,000). As a result, the Net Realizable Value (Accounts Receivable - Allowance) remains unchanged. Net income is not affected because the expense was recognized previously when the allowance was established. Total assets are not affected because the decrease in A/R is offset by the decrease in the Allowance (which increases net A/R).

Question 10

At year-end, a company's records show the following: Credit Sales $900,000; Sales Returns and Allowances $40,000 (all from credit sales); Sales Discounts $10,000. The company estimates its bad debt expense at 1.5% of net credit sales.

Based on the information in the passage, what is the correct amount of Bad Debt Expense to be recorded for the year?

  1. $13,500
  2. $12,750 (correct answer)
  3. $12,900
  4. $13,350
Explanation: The percentage-of-sales method is based on net credit sales. First, calculate net credit sales: (900,000(CreditSales)−900,000 (Credit Sales) - 40,000 (Returns) - 10,000(Discounts)=10,000 (Discounts) = 850,000). Then, calculate the bad debt expense: (850,000×0.015=850,000 \times 0.015 = 12,750). Distractor A (13,500)incorrectlyusesgrosscreditsales.DistractorC(13,500) incorrectly uses gross credit sales. Distractor C (12,900) incorrectly excludes sales discounts from the net sales calculation. Distractor D ($13,350) incorrectly excludes sales returns from the net sales calculation.

Question 11

The following information is available for a company: Accounts Receivable, beginning balance: $75,000; Accounts Receivable, ending balance: $90,000; Uncollectible accounts written off during the year: $5,000; Cash collections from customers: $300,000. What were the company's sales on account for the year?

  1. $310,000
  2. $315,000
  3. $290,000
  4. $320,000 (correct answer)
Explanation: To find the sales on account, you must reconstruct the Accounts Receivable T-account. The formula is: Beginning Balance + Sales - Collections - Write-offs = Ending Balance. Plugging in the numbers: (75,000+Sales−75,000 + Sales - 300,000 - 5,000=5,000 = 90,000). Solving for Sales: (Sales = 90,000+90,000 + 300,000 + 5,000−5,000 - 75,000 = $320,000).

Question 12

On December 31, a company's unadjusted trial balance shows Accounts Receivable of $210,000 and an Allowance for Doubtful Accounts with a credit balance of $500. An aging schedule of the accounts receivable indicates that $11,000 of the accounts will be uncollectible. What is the Net Realizable Value of Accounts Receivable after the adjusting entry for bad debt is made?

  1. $198,500
  2. $199,000 (correct answer)
  3. $199,500
  4. $200,000
Explanation: The aging schedule determines the required ending balance for the Allowance for Doubtful Accounts, which is 11,000. This is the balance that will be reported on the adjusted balance sheet. The Net Realizable Value (NRV) is the Accounts Receivable balance minus this required ending allowance balance. Therefore, the NRV is \(210,000 - $11,000 = 199,000\). The question asks for the NRV after the adjustment, so the calculation for bad debt expense (\(11,000 - $500 = $10,500)) is an intermediate step not directly needed for the final answer, a common trap.

Question 13

A company uses the aging-of-receivables method to estimate uncollectibles. Its analysis indicates that a total of $25,000 is likely uncollectible. Before the year-end adjustment, the Allowance for Doubtful Accounts has a debit balance of $3,000. What is the amount of bad debt expense the company should record for the period?

  1. $22,000
  2. $25,000
  3. $3,000
  4. $28,000 (correct answer)
Explanation: The aging analysis determines the required ending balance in the Allowance for Doubtful Accounts, which is a $25,000 credit. The account currently has a $3,000 debit balance. To get from a $3,000 debit to a 25,000 credit, the company must credit the allowance account for the sum of the two amounts. The journal entry is a debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts for \(3,000 + $25,000 = $28,000).

Question 14

A company sells goods for $20,000 with terms 3/15, n/45. The customer returns $4,000 of goods before making any payment. Within the discount period, the customer makes a partial payment of $10,000. What is the remaining balance in the customer's Accounts Receivable account after this payment?

  1. $6,000.00
  2. $5,700.00
  3. $5,690.72 (correct answer)
  4. $5,880.00
Explanation: First, the accounts receivable balance is reduced by the return: (20,000−20,000 - 4,000 = 16,000\). When a partial payment is made within the discount period, the discount applies only to the portion of the invoice being paid. The 10,000 cash payment represents 97% of the amount of A/R being settled (100% - 3% discount). To find the gross amount of the receivable settled, divide the cash paid by (1 - discount rate): (10,000/(1−0.03)=$10,000/0.97=10,000 / (1 - 0.03) = $10,000 / 0.97 = 10,309.28). The remaining A/R balance is the adjusted balance minus the settled portion: ($16,000 - $10,309.28 = $5,690.72).

Question 15

The following journal entry was made by a company that uses a perpetual inventory system and the allowance method for bad debts:

Debit: Sales Returns and Allowances $2,000 Credit: Accounts Receivable $2,000

This journal entry is incomplete if the returned merchandise can be resold. Which of the following entries should have been made in addition to the one shown in the passage, assuming the cost of the returned merchandise was $1,200?

  1. Debit Inventory $1,200; Credit Cost of Goods Sold $1,200 (correct answer)
  2. Debit Inventory $2,000; Credit Cost of Goods Sold $2,000
  3. Debit Cost of Goods Sold $1,200; Credit Inventory $1,200
  4. Debit Allowance for Doubtful Accounts $1,200; Credit Sales Returns and Allowances $1,200
Explanation: When a customer returns merchandise and the company uses a perpetual inventory system, two entries are required. The first entry reduces revenue and accounts receivable (as shown). The second entry addresses the inventory: it increases the Inventory account for the cost of the goods returned and decreases the Cost of Goods Sold account, effectively reversing the expense recognized at the time of sale. The correct entry is to debit Inventory and credit Cost of Goods Sold for the cost of the merchandise, which is $1,200.

Question 16

On June 1, a company sold goods to a customer for $10,000, with credit terms of 2/10, n/30. On June 5, the same customer purchased additional goods for $5,000, with credit terms of 1/15, n/30. On June 9, the customer made a single payment of $12,000. Company policy is to apply payments to the oldest invoices first. What amount should the company record as Sales Discounts from the June 9th payment?

  1. $222.22 (correct answer)
  2. $200.00
  3. $220.00
  4. $250.00
Explanation: First, apply the payment to the oldest invoice (June 1). The payment on June 9 is within the 10-day discount period. The customer can settle the 10,000 invoice by paying \(10,000 \times (1-0.02) = $9,800). The discount is 200. This leaves \(12,000 - $9,800 = $2,200) of the payment to apply to the second invoice. The June 9 payment is within the 15-day discount period for the June 5 invoice. The 2,200 is a partial payment. The discount is earned on the portion of the invoice settled by this payment. The amount of A/R settled is \(2,200 / (1 - 0.01) = 2,222.22\). The discount on this portion is \(2,222.22 - $2,200 = 22.22\). The total discount is \(200.00 + $22.22 = $222.22).

Question 17

A company makes a sale on account for $10,000. The company uses the gross method to account for sales discounts. Which of the following journal entries correctly records this transaction if the cost of goods sold is $6,000 under a perpetual inventory system?

  1. Debit Accounts Receivable $10,000, Credit Sales Revenue $10,000.
  2. Debit Accounts Receivable $9,800, Credit Sales Revenue $9,800; and Debit Cost of Goods Sold $6,000, Credit Inventory $6,000.
  3. Debit Accounts Receivable $10,000, Credit Sales Revenue $10,000; and Debit Cost of Goods Sold $6,000, Credit Inventory $6,000. (correct answer)
  4. Debit Accounts Receivable $10,000, Credit Sales Revenue $10,000; and Debit Inventory $6,000, Credit Cost of Goods Sold $6,000.
Explanation: Under a perpetual inventory system, a sale on account requires two entries. First, the revenue is recognized at the gross invoice amount. This entry is Debit Accounts Receivable for $10,000 and Credit Sales Revenue for $10,000. Second, the cost of the inventory sold is transferred to an expense account. This entry is Debit Cost of Goods Sold for $6,000 and Credit Inventory for $6,000. Answer choice B includes both necessary entries. Choice C incorrectly uses the net method. Choice A is incomplete. Choice D reverses the cost entry.

Question 18

Jackson Corp. factored $80,000 of accounts receivable to Midwest Financial. The factor charged a 3% factoring fee and withheld 10% of the receivables as security for potential returns and allowances. Assuming this is a transaction without recourse, what journal entry should Jackson record?

  1. Dr. Cash $69,600, Dr. Due from Factor $8,000, Dr. Factoring Expense $2,400, Cr. Accounts Receivable $80,000
  2. Dr. Cash $69,600, Dr. Receivable from Factor $8,000, Dr. Loss on Sale $2,400, Cr. Accounts Receivable $80,000 (correct answer)
  3. Dr. Cash $77,600, Dr. Factoring Expense $2,400, Cr. Accounts Receivable $80,000
  4. Dr. Cash $72,000, Dr. Due from Factor $8,000, Cr. Accounts Receivable $80,000
Explanation: In factoring without recourse, the receivables are sold and removed from the books. Cash received = $80,000 - $2,400 fee - $8,000 withheld = $69,600. The $8,000 withheld creates a receivable from the factor. The $2,400 factoring fee is treated as a loss on sale since this is a sale transaction, not a financing arrangement. Choice A incorrectly labels the fee as 'Factoring Expense' rather than 'Loss on Sale' and uses 'Due from Factor' instead of the more precise 'Receivable from Factor'. Choice C omits the withheld amount entirely. Choice D omits the factoring fee.

Question 19

Stellar Corp. wrote off a $4,500 account receivable from Metro Inc. as uncollectible on March 15. On July 20, Metro Inc. paid the full amount previously written off. If Stellar uses the allowance method, what is the net effect on total assets from these two transactions combined?

  1. Decrease in total assets of $4,500
  2. Increase in total assets of $4,500
  3. No net effect on total assets (correct answer)
  4. Increase in total assets of $9,000
Explanation: When dealing with write-offs and recoveries under the allowance method, you need to track how each transaction affects the accounting equation. The key insight is that under the allowance method, the write-off doesn't impact total assets because you're simply moving amounts between accounts. Let's trace through both transactions. On March 15, when Stellar wrote off the $4,500 receivable, they debited Allowance for Doubtful Accounts and credited Accounts Receivable. Since the allowance account is a contra-asset that already reduced total assets, removing both the receivable and its corresponding allowance has no net effect on total assets. On July 20, when Metro paid, Stellar made two entries: first, they reversed the write-off by debiting Accounts Receivable and crediting Allowance for Doubtful Accounts (restoring both accounts), then they recorded the cash collection by debiting Cash and crediting Accounts Receivable. The net result is an increase in Cash with no change in other asset accounts. Looking at the wrong answers: Answer A assumes the write-off permanently reduced total assets, which ignores how the allowance method works. Answer B suggests only the recovery affects assets, missing that the write-off had no net impact. Answer D incorrectly assumes both transactions increased assets by $4,500 each, double-counting the effect. The combined net effect is zero change to total assets. Study tip: Remember that under the allowance method, write-offs are just reclassifications between existing accounts—the real asset reduction happened when you initially recorded the allowance.

Question 20

Quantum Enterprises had credit sales of $450,000 during the year. The company uses the allowance method and estimates that 2% of credit sales will be uncollectible. At year-end, an aging analysis indicates that $8,200 of specific accounts should be provided for. The Allowance for Doubtful Accounts currently has a credit balance of $1,950 before any adjusting entries.

Assuming Quantum decides to use the aging analysis method instead of the percentage-of-sales method for this year-end adjustment, what adjusting entry should be recorded?

  1. Dr. Bad Debt Expense $9,000, Cr. Allowance for Doubtful Accounts $9,000
  2. Dr. Bad Debt Expense $6,250, Cr. Allowance for Doubtful Accounts $6,250 (correct answer)
  3. Dr. Bad Debt Expense $8,200, Cr. Allowance for Doubtful Accounts $8,200
  4. Dr. Bad Debt Expense $10,150, Cr. Allowance for Doubtful Accounts $10,150
Explanation: Under the aging analysis method, the goal is to adjust the allowance account to equal the required balance indicated by the aging analysis. Required balance: $8,200. Current balance: $1,950 credit. Adjustment needed: $8,200 - $1,950 = $6,250. The adjusting entry is Dr. Bad Debt Expense $6,250, Cr. Allowance for Doubtful Accounts 6,250.ChoiceAusesthepercentage−of−salescalculation(6,250. Choice A uses the percentage-of-sales calculation (450,000 × 2% = 9,000).ChoiceCincorrectlyusestheaginganalysisamountastheadjustmentratherthanthetargetbalance.ChoiceDaddstheagingamounttothecurrentbalance(9,000). Choice C incorrectly uses the aging analysis amount as the adjustment rather than the target balance. Choice D adds the aging amount to the current balance (8,200 + $1,950).