Manufacturing companies is type of businesses in which raw materials are converted to finished goods and then sold to customers.

Sales returns and allowances reduce the amount of accounts receivables since the customer delivers back the goods or the company waives a portion of its claim due to product defects.

The materiality concept states that a company must perform strictly proper accounting only for significant items.2 Information is significant (material in accounting terms) when it would cause someone to change a decision. The most important point about this concept is to understand what is significant or material. The correct answer is D.

When COGS is deducted from sales revenue, gross profit is calculated. Gross
profit evaluates the company’s profitability in terms of selling activities.

The most practiced method to sell receivables is the sale to a factor, also called as factoring. Factoring is the business of purchasing receivables from companies upon a fee for the services performed to manage and collect receivables. A factor is generally a bank or a finance company that purchases receivables from companies for a fee and then it collects payments directly from these customer receivables at their prescribed time. Traditionally, factoring was associated with home furnishing, footwear, textile, and furniture industries. B is the right answer

This ratio is calculated by simply dividing Net credit sales by Average Accounts Receivable for the duration during which the sales were made by the company.

Income statement is the financial statement that reports operation results of a business for a specific period of time (month, quarter quarter, or year year).

The other way in which uncollectible receivables can be calculated is through Direct Write-off Method, which is mainly used by relatively small and private companies. Under this method, a company does not estimate bad debts losses and does not use allowance account for the expenses based on estimates. Instead, when a specific receivable is considered to be uncollectible or worthless, the loss amount is charged directly to the uncollectible account expense. E is the right answer.
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Bad debt expense is an income statement account that shows the losses incurred due to uncollectible receivables.

Fraud is an intentional misrepresentation of facts which is, made for purpose of persuading another party to act in a way that causes injury or damage to that party.

Under allowence method, the company should make necessary adjustments at the end of its accounting year for the amount of losses it predicts as a result of making sales on credit to its customers. This allowance method has three basic yet important features:
1. The uncollectible amounts are anticipated and the expense for the uncollectible account is matched against sales in the same period in which sales were made.
2. Through an adjusting entry at the last of accounting year, forecasted uncollectible receivables are credited to Allowance for Doubtful Debts Account and debited to Bad Debts Expense account.
3. Recognized uncollectible receivables are debited to Allowance for Doubtful Debts Account and credited to Account Receivable account at the time when specific amount is written. A is the right answer

A bank statement is a document which is prepared by a bank to show the transactions that occurred in the account of a business within a month.

Recognizing accounts receivable is comparatively simple and straight. Accounts receivable arises when a company sells goods or services to its customer on credit in its normal course of business. Normally a 30 to 60-day time period is entitled to the debtors for payment. D is the right answer.

Control Environment,  risk assessment, control activities, monitor activities and information and communication are the components of internal control.

Sales returns and allowances reduce the amount of accounts receivables since the customer delivers back the goods or the company waives a portion of its claim due to product defects.

The disclosure principle holds that a company should report enough information for financial statement users to understand methods and procedures used for each component of the financial statements to make wise decisions about the company by providing additional information.

Ethics are the humanly devised rules, procedures and norms to judge one’s action as right or wrong, honest or dishonest and fair or not fair.

A business should report the least favorable figures in the financial statements when two or more possible options are presented according to the conservatism concept requirements.

Merchandise on hand (not sold) is called merchandise inventory asset.

The correct answer is D. Cash ratio is (Cash + Cash Equivalents) / Total Current Liabilities. Current Assets and the first current asset is “Cash” which is the most liquid asset of a business. For different proposes of financial statement presentation process, it can be written as Cash equivalents which is a highly liquid investment that can be converted into cash in a short term.