Accounts Receivable Questions

Q:

Which of the following best describes term life insurance? 

A) The insured pays a premium for a specified number of years. B) The insured is covered during his or her entire lifetime.
C) The insured pays the premium until his or her death. D) The insured can borrow or collect the cash value of the policy.
 
Answer & Explanation Answer: A) The insured pays a premium for a specified number of years.

Explanation:
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Q:

Depreciation is a process of

A) Allocation B) Valuation
C) Both A & B D) Appropriation
 
Answer & Explanation Answer: A) Allocation

Explanation:

Depreciation is a process of cost allocation, not valuation. In accounting, the term depreciation refers to the allocation of cost of a tangible asset to expense to the periods in which the asset is expected to be used to obtain the economic benefit.

 

In brief, Depreciation is fall in the value of assets due to wear and tear over a period of time, it is a loss.

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Q:

Who buys Municipal bonds?

Answer

The persons whose primary investing objective is to preserve capital while generating a tax-free income stream, then municipal bonds are worth considering.


Municipal bonds (munis) are debt obligations issued by government entities. When you buy a municipal bond, you are loaning money to the issuer in exchange for a set number of interest payments over a predetermined period. At the end of that period, the bond reaches its maturity date, and the full amount of your original investment is returned to you.


 


Types of Municipal Bonds :


Municipal bonds come in the following two varieties:


1. General obligation bonds (GO)
2. Revenue bonds


General obligation bonds, issued to raise immediate capital to cover expenses, are supported by the taxing power of the issuer.


Revenue bonds, which are issued to fund infrastructure projects, are supported by the income generated by those projects.


 


Both types of bonds are tax exempt and particularly attractive to risk-averse investors due to the high likelihood that the issuers will repay their debts.

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Q:

when a purchase on account is made the invoice becomes

A) debt B) credit
C) both A & B D) None of the above
 
Answer & Explanation Answer: A) debt

Explanation:
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Q:

The APC is calculated as

A) consumption/income B) change in income/change in consumption
C) income/consumption D) change in consumption/change in income
 
Answer & Explanation Answer: A) consumption/income

Explanation:

The average propensity to consume (APC) is the ratio of consumption expenditures (C) to disposable income (DI), or APC = C / DI. 

 

Hence, APC = consumption/income.

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Q:

Is accounts receivable an asset or liability?

Answer

Accounts receivable is the amount to be received by the seller from the customer. Hence, it comes under asset.

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Q:

Unearned revenue is classified as

A) Liability B) Owner's equity
C) Asset D) Income
 
Answer & Explanation Answer: A) Liability

Explanation:

Unearned revenue is the money or revenue earned for the product or the service that is not yet sold or provided to the customer. Hence, it comes under liabilities.

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Q:

What type of account is accounts receivable?

A) Asset B) Liability
C) Expense D) Equity
 
Answer & Explanation Answer: A) Asset

Explanation:

Accounts receivable is listed as a current asset in the balance sheet, since it is usually convertible into cash in less than one year as it is the amount owed by the customer to the seller.

 

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