Q1 - Which financial statement is prepared according to cash basis of accounting:
a. Cash Flow Statement
b. Income Statement
c. Balance Sheet
d. Retained earnings Statement
Q2 - ............... is a present obligation that grew out of a past event and will require a future sacrifice to extinguish the obligation.
a. Unearned Revenue
Q3 - Days ‘sales uncollected ratio is
a. Average receivable/ credit sales
b. Accounts receivable/ net credit sales* 365 days
c. Credit sales/ average receivable
d. Accounts receivable/ total average assets.
Required 1: The correct option is a i.e Cash flow statement.
The cash basis is a method of recording accounting transactions for revenue and expenses only when the corresponding cash is received or payments are made.
Required 2: The correct option is D i.e Liability.
Liability is a present obligation that grew out of a past event and will require a future sacrifice to extinguish the obligation.
Required 3: The correct option is B i.e Accounts receivable/ net credit sales* 365 days.
Days sales uncollected ratio helps in measuring the days within which the company will actually receive the cash for its sales.
Days sales uncollected = (Accounts receivable / Net credit sales) * 365.
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