HomeworkLib
Question

5. If a company could get its customers to make substantial down payments (advance payments) with their orders, would the com
business   accounting   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

If the company receives down payments or advance payments with orders, it is recognized in books by debiting cash account, and crediting advance account. A liability is created as the services are yet to be provided by the company.
As a result of this, current liabilities are increased, with a corresponding increase in current assets as cash is increased.
Due to this addition, the current ratio will come down.
For example, if the current assets are 100000, current liabilities are 40000, an advance of 25000 is received. Current assets will be 125000 and current liabilities will be 65000. Initially, current ratio was 100000/40000, i.e. 2.5. After receiving the advance, it is 125000/65000, i.e. 1.93.

0 0
Add a comment
Know the answer?
Add Answer to:
5. If a company could get its customers to make substantial down payments (advance payments) with...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Jackson Systems is considering becoming certified to the ISO 9000 series of quality standards. Becoming certified is expensive, but the company could lose a substantial amount of business if its major...

    Jackson Systems is considering becoming certified to the ISO 9000 series of quality standards. Becoming certified is expensive, but the company could lose a substantial amount of business if its major customers suddenly demand ISO certification and the company does not have it. At a management retreat, the senior executives of the firm developed the following payoff table, indicating the net present value of profits over the next 5 years. Profits (in $000) Standards Req Standards Not Req Become Certified...

  • 5. 5. The current ratio measures: A) The ability of a company to quickly sell its...

    5. 5. The current ratio measures: A) The ability of a company to quickly sell its inventory to customers. B) The amount of profits retained in the business. C) The ability of a company to quickly collect cash from customers. D) The ability of a company to pay its current obligations.

  • 5-14. The Garcia-Lanoue Company produces indus- trial goods. The company receives purchase orders from its customers...

    5-14. The Garcia-Lanoue Company produces indus- trial goods. The company receives purchase orders from its customers and ships goods accordingly. Assuming that the following condi- tions apply, develop a document flowchart for this company: a. The company receives two copies of every purchase order from its customers. b. Upon receipt of the purchase orders, the company ships the goods ordered. One copy of the purchase order is returned to the cus- tomer with the order, and the other copy goes...

  • Company has decided to offer credit to its customers during the spring selling season. Sales are...

    Company has decided to offer credit to its customers during the spring selling season. Sales are expected to be 10,000 softwares. The average cost to the firm of a software is $5,000. The owner knows that only 87 percent of the customers will be able to make the payments. To identify the remaining 13 percent, the firm is considering subscribing to a credit agency. The initial charge for the service is $1,050, with an additional charge of $20 per individual...

  • Zackie Company has recently allowed its customers to make purchases on credit. The terms are 2/10,...

    Zackie Company has recently allowed its customers to make purchases on credit. The terms are 2/10, n/30. Unfortunately, Zackie Company has found that not all of its credit customers pay their bills on time. Accordingly, Zackie Company has estimated an allowance for uncollectible accounts and matched this bad debt expense against credit sales. On Zackie Company’s financial statements, the allowance for uncollectible accounts is classified as a current liability. 1. State two accounting issues in this case. 2. Provide ASC...

  • X Company is considering modifying one of its main products next year that would make it...

    X Company is considering modifying one of its main products next year that would make it more attractive to customers. Financial information for the product for this year was as follows: Selling price $9.32 Variable costs per unit $3.54 Total fixed costs $10,220 If it modified the product, X Company could increase the selling price by $2.10, and unit sales for the modified product would still be the same as current product unit sales. However, fixed costs would increase to...

  • QUESTION ONE Part A Advance Media Ltd provides high quality digital solutions to its customers in...

    QUESTION ONE Part A Advance Media Ltd provides high quality digital solutions to its customers in Melbourne. The company's financial year ends on 31 December. The company had following transactions and events during 2016. January 1 Purchased a patent for $150,000 cash. The patent has a legal life of five (5) years. April 30 Paid $75,000 to research and develop a new software program but wasn't sure whether the software would in fact generate any revenue. July 1 Purchased a...

  • Assess your satisfaction with Aldi and make recommendations about how the company could modify its business-level...

    Assess your satisfaction with Aldi and make recommendations about how the company could modify its business-level strategy to both increase your overall level of satisfaction and to attract new customers. Provide specific examples to support your response. Analyze the five business-level strategies discussed in Chapter 4 to determine which strategy most likely applies to Aldi. Determine how a shopper's experience might change if it switched to one of the other four strategies (your choice). Explain your rationale

  • Measures of liquidity, The ability of a company to make its periodic interest payments and repay...

    Measures of liquidity, The ability of a company to make its periodic interest payments and repay the face amount of debt at maturity.Solvency, and The ability of a firm to generate earnings.Profitability The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $ 57 on December 31, 20Y2. Marshall Inc. Comparative Retained Earnings Statement For the Years Ended December 31, 20Y2 and 20Y1    20Y2    20Y1 Retained earnings, January 1 $4,485,650...

  • An insurance company must make payments to a customer of $10 million in 5 years and...

    An insurance company must make payments to a customer of $10 million in 5 years and $25 million in 30 years. The yield curve is flat at 8%. a) What is the present value and duration of its obligation? b) If it wants to fully fund and immunize its obligation to this customer with a single issue of a zero- coupon bond, what maturity bond must it purchase? Suppose you buy a zero-coupon bond with value and duration equal to...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT