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NetSuite Financial User study materials
NetSuite Financial User study resources

NetSuite Financial User practice questions

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Question 1Financial Foundations and Core Accounting

In NetSuite, which account type increases with a debit and appears on the balance sheet?

  1. Asset Correct answer.
  2. Equity
  3. Income
  4. Liability

Explanation

Asset accounts carry a normal debit balance, so debits increase them and they are reported on the balance sheet. Income accounts increase with credits and appear on the income statement, while liability and equity accounts also carry normal credit balances.

Question 2Financial Foundations and Core Accounting

A company records a $1,200 utility bill that will be paid next month. Which journal entry correctly records this transaction in NetSuite?

  1. Debit Cash 1,200; Credit Utilities Expense 1,200
  2. Debit Accounts Payable 1,200; Credit Utilities Expense 1,200
  3. Debit Utilities Expense 1,200; Credit Accounts Payable 1,200 Correct answer.
  4. Debit Utilities Expense 1,200; Credit Cash 1,200

Explanation

The expense is incurred now, so Utilities Expense is debited, and because payment is deferred the obligation is credited to Accounts Payable. Cash is untouched until the bill is actually paid. This keeps the expense in the correct period under accrual accounting.

Question 3Financial Foundations and Core Accounting

Which statement best describes the purpose of the Chart of Accounts in NetSuite?

  1. It records the exchange rates used when consolidating foreign subsidiaries
  2. It stores the names and addresses of customers who purchase on credit
  3. It lists every account used to classify transactions for reporting and financial statements Correct answer.
  4. It defines the tax codes applied to vendor bills and sales transactions

Explanation

The Chart of Accounts is the master list of accounts that classify every posting, and it drives how balances roll into financial statements. Customer records, tax codes, and currency rates are maintained in separate lists and features.

Question 4Financial Foundations and Core Accounting

Which financial statement reports a company's revenues and expenses over a period of time?

  1. Statement of Cash Flows
  2. Income Statement Correct answer.
  3. Balance Sheet
  4. Trial Balance

Explanation

The Income Statement, also called the profit and loss statement, summarizes revenues and expenses for a period and derives net income. The balance sheet is a point-in-time snapshot, and the cash flow statement tracks cash movements rather than accrual profit.

Question 5Financial Foundations and Core Accounting

A vendor bill is entered in NetSuite but should not affect the general ledger until it is approved. Which feature supports this requirement?

  1. A recurring journal entry template scheduled monthly
  2. Approval routing that holds the bill in a pending status before posting Correct answer.
  3. The vendor record's default expense account
  4. The Accounts Payable aging report grouped by due date

Explanation

Approval routing can place a transaction in a pending approval state so it does not post to the general ledger until approved. Aging reports, recurring templates, and default accounts do not by themselves prevent posting.

Question 6Financial Foundations and Core Accounting

Which NetSuite record is used to record a customer's payment against an outstanding invoice?

  1. Customer Payment Correct answer.
  2. Invoice
  3. Credit Memo
  4. Sales Order

Explanation

A Customer Payment applies cash received to one or more open invoices, reducing the accounts receivable balance. An invoice creates the receivable, a credit memo reduces it without cash, and a sales order is a pre-billing commitment.

Question 7Financial Foundations and Core Accounting

What is the effect of recording a $500 depreciation journal entry in NetSuite?

  1. Debit Depreciation Expense 500; Credit Accumulated Depreciation 500 Correct answer.
  2. Debit Accumulated Depreciation 500; Credit Depreciation Expense 500
  3. Debit Fixed Asset 500; Credit Depreciation Expense 500
  4. Debit Depreciation Expense 500; Credit Cash 500

Explanation

Depreciation allocates an asset's cost to expense over time, so Depreciation Expense is debited and the contra-asset Accumulated Depreciation is credited. No cash moves, and the gross fixed asset account is not changed by the periodic entry.

Question 8Financial Foundations and Core Accounting

Which NetSuite feature automatically creates reversing entries on the first day of the following period?

  1. Revenue recognition schedules
  2. Intercompany elimination
  3. Reversing journal entries Correct answer.
  4. Statistical accounts

Explanation

Reversing journal entries are configured to post an automatic offset in the next period, commonly used for accruals. Intercompany elimination, revenue schedules, and statistical accounts serve different purposes and do not reverse entries.

Question 9Financial Foundations and Core Accounting

A company bills a customer $10,000 for services performed in March but does not issue the invoice until April. Under accrual accounting, what should be recorded in March?

  1. No entry until the invoice is created in April
  2. A journal entry debiting Cash and crediting Revenue for 10,000
  3. A journal entry debiting Accounts Receivable and crediting Revenue for 10,000 Correct answer.
  4. A journal entry debiting Deferred Revenue and crediting Revenue for 10,000

Explanation

Accrual accounting recognizes revenue when it is earned, so March needs an entry debiting Accounts Receivable and crediting Revenue. The later invoice then clears the receivable rather than creating the revenue. Cash has not been received and no deferral exists because the service was already performed.

Question 10Financial Foundations and Core Accounting

A NetSuite user posts a journal entry with total debits of $4,500 and total credits of $4,000. What happens when the entry is saved?

  1. NetSuite saves it and silently adjusts the largest credit line
  2. NetSuite saves it and posts the $500 difference to a suspense account
  3. NetSuite saves it and posts the $500 difference to retained earnings
  4. NetSuite blocks the save because debits and credits must balance Correct answer.

Explanation

NetSuite enforces double-entry balance, so a journal entry whose debits and credits differ cannot be saved. There is no automatic plug to retained earnings, suspense, or any credit line. The user must correct the amounts before posting.

Question 11Financial Foundations and Core Accounting

Which account type is used for a contra-asset such as Accumulated Depreciation in NetSuite?

  1. Asset, with the Decrease option selected so it carries a credit balance Correct answer.
  2. Equity, because it reduces the owners' residual interest
  3. Liability, because it represents an obligation to replace the asset
  4. Expense, because depreciation is charged to the income statement

Explanation

Accumulated Depreciation is set up as an Asset account with the Decrease flag so its normal balance is a credit that offsets gross fixed assets. It is not a liability, expense, or equity account even though it reduces net assets. This keeps the balance sheet presentation correct.

Question 12Financial Foundations and Core Accounting

A customer returns $800 of goods originally sold on account. Which NetSuite transaction reduces the receivable without issuing a cash refund?

  1. Sales Order with a negative quantity
  2. Customer Payment applied to the invoice
  3. Journal entry debiting Cash and crediting Revenue
  4. Credit Memo applied to the open invoice Correct answer.

Explanation

A Credit Memo records the return or allowance and, when applied to the invoice, reduces the accounts receivable balance. A customer payment increases cash received, and sales orders do not post to the ledger. No cash refund occurs in this scenario.

Question 13Financial Foundations and Core Accounting

What is the primary purpose of the NetSuite period close checklist?

  1. To sequence and track the tasks required to lock an accounting period Correct answer.
  2. To convert foreign currency balances into the subsidiary's base currency
  3. To calculate sales tax on transactions before they post
  4. To generate purchase orders from approved requisitions

Explanation

The period close checklist organizes the steps needed to finalize and lock a period, such as reconciliations and journal entries, and tracks completion. Tax calculation, currency translation, and purchasing workflows are handled by separate features.

Question 14Financial Foundations and Core Accounting

A company receives $3,000 in January for services it will perform in February. Which entry should be recorded in January?

  1. Debit Accounts Receivable 3,000; Credit Revenue 3,000
  2. Debit Cash 3,000; Credit Revenue 3,000
  3. Debit Cash 3,000; Credit Deferred Revenue 3,000 Correct answer.
  4. Debit Deferred Revenue 3,000; Credit Cash 3,000

Explanation

Cash received before the service is performed creates a liability, so Cash is debited and Deferred Revenue is credited in January. Revenue is recognized in February when the service is delivered, typically by debiting Deferred Revenue and crediting Revenue. Recognizing revenue early would violate accrual principles.

Question 15Financial Foundations and Core Accounting

Which NetSuite report lists account balances with debit and credit columns to confirm that total debits equal total credits?

  1. Income Statement
  2. A/R Aging
  3. General Ledger
  4. Trial Balance Correct answer.

Explanation

The Trial Balance report presents each account's ending debit or credit balance and proves that the two columns agree. The income statement shows profitability, aging shows receivables by due date, and the general ledger details individual postings.

Question 16Financial Foundations and Core Accounting

A user needs to allocate a shared $6,000 rent cost across three departments by a 50/30/20 percentage split. Which NetSuite capability is designed for this?

  1. The consolidated exchange rate feature
  2. Expense allocation schedules that distribute amounts by defined ratios Correct answer.
  3. Statistical accounts holding headcount only
  4. A single journal entry with all 6,000 posted to one department

Explanation

Allocation schedules distribute a cost across departments, classes, or locations using defined ratios, producing the correct departmental postings. Posting the full amount to one department misstates each department's expense, and exchange rates and statistical accounts do not allocate costs.

Question 17Financial Foundations and Core Accounting

Which statement about the relationship between the balance sheet and the income statement is correct?

  1. The income statement reports liabilities that appear on the balance sheet
  2. Net income from the income statement increases retained earnings on the balance sheet Correct answer.
  3. Cash on the balance sheet equals net income for the same period
  4. Total assets on the balance sheet always equal total revenue on the income statement

Explanation

Net income closes into retained earnings, linking the income statement to the equity section of the balance sheet. Assets do not equal revenue, cash differs from net income because of accruals and non-cash items, and liabilities are not reported on the income statement.

Question 18Financial Foundations and Core Accounting

A vendor bill of $2,000 is entered against an expense account, but the goods were received and the bill will be paid later. Which accounts are affected when the bill is saved?

  1. Expense is debited and Accounts Payable is credited Correct answer.
  2. Expense is debited and Cash is credited
  3. Inventory is debited and Accounts Payable is credited
  4. Accounts Payable is debited and Expense is credited

Explanation

Saving a vendor bill records the expense and the corresponding payable, so Expense is debited and Accounts Payable is credited. Cash is only affected when the bill is later paid. Debiting Accounts Payable would reduce a liability rather than create one.

Question 19Financial Foundations and Core Accounting

Which NetSuite account type is used for Cost of Goods Sold so that it appears in the correct section of the income statement?

  1. Expense
  2. Income
  3. Other Expense
  4. Cost of Goods Sold Correct answer.

Explanation

NetSuite provides a dedicated Cost of Goods Sold account type so gross profit is calculated correctly and COGS appears above the gross margin line. Using the general Expense type places the balance in operating expenses, and Other Expense and Income are different sections entirely.

Question 20Financial Foundations and Core Accounting

A subsidiary in euros reports to a parent whose base currency is US dollars. Which NetSuite process converts the subsidiary's balances for consolidated reporting?

  1. Changing the subsidiary's base currency to USD
  2. Entering a manual journal entry in the parent's books each month
  3. Currency translation during consolidation using defined exchange rates Correct answer.
  4. Posting the subsidiary's transactions directly to the parent's accounts

Explanation

Consolidation translates each subsidiary's balances into the parent's currency using the exchange rates defined for the period. Manual journals, changing the base currency, or posting directly to parent accounts would not correctly reflect local books and translation rules.

Question 21Financial Foundations and Core Accounting

A company records $12,000 of prepaid insurance in January covering twelve months. What is the correct treatment at the end of January?

  1. Recognize $1,000 of insurance expense and reduce the prepaid asset by $1,000 Correct answer.
  2. Recognize $12,000 of expense and credit Cash again
  3. Leave the entire $12,000 as a prepaid asset until December
  4. Recognize the full $12,000 as expense in January

Explanation

Prepaid insurance is an asset that is consumed over the coverage period, so one month's portion, $1,000, is expensed and the prepaid asset is reduced. Expensing the full amount early overstates January expense, and leaving it untouched overstates the asset. Cash was already recorded at purchase.

Question 22Financial Foundations and Core Accounting

A journal entry debits Rent Expense $5,000 and credits Accounts Payable $5,000. Later the bill is paid by check. Which entry clears the payable?

  1. Debit Rent Expense 5,000; Credit Cash 5,000
  2. Debit Accounts Payable 5,000; Credit Rent Expense 5,000
  3. Debit Accounts Payable 5,000; Credit Cash 5,000 Correct answer.
  4. Debit Cash 5,000; Credit Accounts Payable 5,000

Explanation

Paying the payable reduces the liability with a debit and reduces cash with a credit. Debiting Rent Expense again would double-count the expense already recorded. Crediting Accounts Payable would increase rather than clear the liability.

Question 23Financial Foundations and Core Accounting

A user reviews a balance sheet and notices that total assets grew by $50,000 while total liabilities grew by $80,000. Assuming no other changes, what happened to equity?

  1. Equity increased by $130,000
  2. Equity increased by $30,000
  3. Equity was unchanged
  4. Equity decreased by $30,000 Correct answer.

Explanation

From the accounting equation, equity equals assets minus liabilities, so a $50,000 asset increase and an $80,000 liability increase produce a $30,000 equity decrease. Adding the two changes or assuming no effect misapplies the equation. This analysis helps spot unusual movements during review.

Question 24Financial Foundations and Core Accounting

An accountant must correct a $900 overstatement of revenue recorded in a closed prior period. Which approach is appropriate in NetSuite?

  1. Ignore the error because closed periods cannot be adjusted
  2. Post a reversing entry that debits Revenue and credits Cash in the current period
  3. Reopen the closed period and delete the original transaction
  4. Post a correcting entry in the current open period that adjusts the prior-period impact through retained earnings Correct answer.

Explanation

When a prior period is closed, corrections are typically recorded in the current open period, with the prior-period effect routed to retained earnings so current income is not distorted. Deleting transactions in a closed period destroys the audit trail, and cash was not necessarily affected. Ignoring a known error is never appropriate.

Question 25Financial Foundations and Core Accounting

A company has $40,000 in accounts receivable, of which $3,000 is estimated uncollectible. It uses the allowance method. What is the effect of recording the bad debt allowance?

  1. Debit Bad Debt Expense and credit Allowance for Doubtful Accounts Correct answer.
  2. Debit Allowance for Doubtful Accounts and credit Accounts Receivable
  3. Debit Cash and credit Allowance for Doubtful Accounts
  4. Debit Bad Debt Expense and credit Accounts Receivable

Explanation

Under the allowance method, the estimate is recorded by debiting Bad Debt Expense and crediting a contra-asset allowance, so receivables are presented at net realizable value. The receivable itself is not reduced until a specific account is written off. No cash is involved in the estimate.

Question 26Financial Foundations and Core Accounting

In NetSuite, which account type causes a balance to appear in the Current Assets section of the balance sheet by default?

  1. Bank
  2. Accounts Receivable Correct answer.
  3. Fixed Asset
  4. Other Current Asset

Explanation

Accounts Receivable is a current asset account type, so its balance rolls into the Current Assets section of the standard balance sheet. Bank is also a current asset but is presented in its own cash grouping, while Fixed Asset and Other Current Asset sit outside the receivables line.

Question 27Financial Foundations and Core Accounting

Which NetSuite transaction type is used to record the obligation to pay a vendor for goods or services already received?

  1. Bill Payment
  2. Vendor Bill Correct answer.
  3. Purchase Order
  4. Vendor Credit

Explanation

A Vendor Bill records the payable and the related expense or asset when the vendor's invoice is received. The Purchase Order is only a commitment, the Vendor Credit reduces what is owed, and the Bill Payment settles the liability.

Question 28Financial Foundations and Core Accounting

Under double-entry accounting as applied in NetSuite, what must be true of every posted transaction?

  1. Each line must reference a customer record
  2. Total debits equal total credits Correct answer.
  3. Every line must use a different account
  4. Total debits exceed total credits by the tax amount

Explanation

Double-entry bookkeeping requires that the sum of debits equals the sum of credits for any transaction before it can post. NetSuite enforces this balance at the transaction level, which keeps the general ledger in balance.

Question 29Financial Foundations and Core Accounting

Which statement best describes the function of a chart of accounts in NetSuite?

  1. It controls which users may log in to the account
  2. It defines the accounts available for posting and their reporting classification Correct answer.
  3. It stores the list of approved vendors for purchasing
  4. It holds the exchange rates used for currency translation

Explanation

The chart of accounts is the master list of general ledger accounts, each with an account type that determines where balances appear in reports. Transactions must post to accounts defined there, which is what makes financial statements meaningful.

Question 30Financial Foundations and Core Accounting

A company sells $2,000 of goods on credit. Which entry does NetSuite post to record the sale?

  1. Debit Cash $2,000 and credit Revenue $2,000
  2. Debit Accounts Receivable $2,000 and credit Cash $2,000
  3. Debit Revenue $2,000 and credit Accounts Receivable $2,000
  4. Debit Accounts Receivable $2,000 and credit Revenue $2,000 Correct answer.

Explanation

A credit sale increases the receivable asset and recognizes revenue at the same time, so Accounts Receivable is debited and Revenue is credited. Cash is untouched until the customer pays.

Question 31Financial Foundations and Core Accounting

Which NetSuite record defines the fiscal periods, such as months and quarters, into which transactions are posted?

  1. Accounting Period Correct answer.
  2. Department
  3. Subsidiary
  4. Currency

Explanation

Accounting Period records define the fiscal calendar and carry the period status used to control posting. Subsidiaries, departments, and currencies are classification dimensions rather than time periods.

Question 32Financial Foundations and Core Accounting

What does a trial balance report demonstrate?

  1. That all bank reconciliations are complete
  2. That every customer invoice has been collected
  3. That the budget matches actual results
  4. That total debits equal total credits across all accounts Correct answer.

Explanation

A trial balance lists account balances in debit and credit columns and proves that the ledger's debits and credits are equal. It is a mechanical check of posting integrity, not a measure of collections, reconciliation, or budget performance.

Question 33Financial Foundations and Core Accounting

Which item appears on an income statement rather than on a balance sheet?

  1. Accounts Payable
  2. Prepaid Expenses
  3. Retained Earnings
  4. Sales Revenue Correct answer.

Explanation

Revenue is a temporary income statement account that measures performance over a period and is closed into equity at year end. Prepaid Expenses, Accounts Payable, and Retained Earnings are permanent balance sheet balances.

Question 34Financial Foundations and Core Accounting

A user enters a vendor bill of $1,500 for office supplies on account. Which accounts are affected?

  1. Debit Cash $1,500 and credit Office Supplies Expense $1,500
  2. Debit Office Supplies Expense $1,500 and credit Accounts Payable $1,500 Correct answer.
  3. Debit Office Supplies Expense $1,500 and credit Cash $1,500
  4. Debit Accounts Payable $1,500 and credit Office Supplies Expense $1,500

Explanation

A vendor bill records the expense and the obligation to pay, so the expense account is debited and Accounts Payable is credited. Cash is not credited until a bill payment is issued.

Question 35Financial Foundations and Core Accounting

How does NetSuite treat a journal entry dated in a period whose status is set to Closed?

  1. It posts automatically to the next open period
  2. It is blocked from posting unless the period is reopened Correct answer.
  3. It posts normally but is flagged for review
  4. It posts only if the user holds the Administrator role

Explanation

A closed accounting period prevents new postings, which is the control that protects reported results from later changes. A user with appropriate permission must reopen the period before the entry can be saved and posted.

Question 36Financial Foundations and Core Accounting

A company pays $1,200 in advance for six months of maintenance beginning in the current month. Which approach correctly records the initial payment in NetSuite?

  1. Debit Maintenance Expense $1,200 and credit Cash $1,200
  2. Debit Accounts Payable $1,200 and credit Prepaid Expense $1,200
  3. Debit Prepaid Expense $1,200 and credit Cash $1,200 Correct answer.
  4. Debit Cash $1,200 and credit Prepaid Expense $1,200

Explanation

A payment for future services is an asset until the benefit is consumed, so Prepaid Expense is debited and Cash is credited. The prepaid balance is then amortized to expense over the six service months.

Question 37Financial Foundations and Core Accounting

Which NetSuite feature lets a company record a transaction in one currency while the general ledger is maintained in the subsidiary's base currency?

  1. Revenue recognition schedules
  2. Multi-Currency with exchange rate translation on the transaction Correct answer.
  3. Consolidation elimination rules
  4. Statistical accounts

Explanation

With multi-currency enabled, a transaction can be entered in a foreign currency and NetSuite stores both the transaction-currency amount and the base-currency equivalent using the applicable exchange rate. That dual amount is what allows the ledger to remain in the base currency.

Question 38Financial Foundations and Core Accounting

A customer invoice is created with a 10% discount applied to a $5,000 line. Which amount is posted to Accounts Receivable?

  1. $4,500 Correct answer.
  2. $5,000
  3. $500
  4. $5,500

Explanation

The discount reduces the amount the customer owes, so the receivable and revenue are recorded at the net $4,500. The $500 discount is a reduction of the transaction total, not an additional receivable.

Question 39Financial Foundations and Core Accounting

Which transaction should be used to apply a previously recorded vendor credit against an open vendor bill and pay the remaining balance from a bank account?

  1. Bill Payment Correct answer.
  2. Vendor Prepayment
  3. Journal Entry
  4. Bill Credit

Explanation

In NetSuite, a Bill Payment transaction can apply an available vendor credit to an open bill and pay the remaining balance from a bank account. A Bill Credit can apply a vendor credit directly, but does not make the cash payment required here.

Question 40Financial Foundations and Core Accounting

What is the effect of a debit to an expense account and a credit to an accrued liability account at month end?

  1. It records an expense incurred but not yet billed Correct answer.
  2. It records a payment made before the expense was incurred
  3. It reclassifies an asset to another asset
  4. It reverses an entry from the prior period

Explanation

Accruing an unbilled expense debits the expense so it appears in the correct period and credits a liability for the amount owed. When the vendor bill arrives later, the accrual is reversed or offset against the actual bill.

Question 41Financial Foundations and Core Accounting

A company's balance sheet shows total assets of $500,000 and total liabilities of $320,000. What is total equity?

  1. $500,000
  2. $320,000
  3. $180,000 Correct answer.
  4. $820,000

Explanation

The accounting equation states that assets equal liabilities plus equity, so equity is assets minus liabilities. Here $500,000 minus $320,000 gives $180,000.

Question 42Financial Foundations and Core Accounting

Which report would a controller review to see how much of the outstanding receivable balance is past due by customer?

  1. Accounts Receivable Aging Correct answer.
  2. Income Statement
  3. General Ledger
  4. Inventory Valuation

Explanation

The A/R Aging report buckets open receivables by days past due, which lets a controller focus collection efforts. The general ledger shows posting detail but not aging buckets, and the other reports address different questions.

Question 43Financial Foundations and Core Accounting

A journal entry is prepared to record $4,000 of depreciation on equipment. Which accounts are affected?

  1. Debit Depreciation Expense and credit Accumulated Depreciation Correct answer.
  2. Debit Depreciation Expense and credit Equipment
  3. Debit Equipment and credit Cash
  4. Debit Accumulated Depreciation and credit Depreciation Expense

Explanation

Depreciation allocates the cost of an asset to expense while preserving the asset's original cost, so the expense is debited and the contra-asset Accumulated Depreciation is credited. The Equipment account itself is not reduced.

Question 44Financial Foundations and Core Accounting

How does NetSuite determine which subsidiary a transaction belongs to when a user enters a journal entry?

  1. It derives the subsidiary solely from the currency used
  2. It always defaults to the root subsidiary and cannot be changed
  3. It uses the subsidiary selected on the entry header, which must be permitted for the user Correct answer.
  4. It assigns the subsidiary from the customer's shipping address

Explanation

The subsidiary on a transaction header drives intercompany and reporting treatment, and the user's role must include that subsidiary in its permissions. It is not forced to the root and is not inferred from currency or address.

Question 45Financial Foundations and Core Accounting

A company discovers that a $2,500 invoice was recorded twice in the same open period. What is the most appropriate correction in NetSuite?

  1. Void the duplicate invoice so both the receivable and revenue are removed Correct answer.
  2. Delete the customer record
  3. Post a journal entry to retained earnings
  4. Open a support case to reverse the period close

Explanation

Voiding the duplicate invoice in the same open period removes the extra receivable and revenue and leaves an audit trail. Because the period is still open, no prior-period adjustment is needed.

Question 46Financial Foundations and Core Accounting

Which statement correctly describes the role of a reversing journal entry in NetSuite?

  1. It converts a journal entry into a vendor bill
  2. It permanently removes the original entry from the ledger
  3. It creates an offsetting entry in the next period so the accrual does not carry forward Correct answer.
  4. It closes the accounting period automatically

Explanation

A reversing entry posts an equal and opposite entry, typically on the first day of the next period, so a temporary accrual clears itself. The original entry remains in the ledger, preserving the audit trail.

Question 47Financial Foundations and Core Accounting

A company has $60,000 of accounts receivable and estimates 5% will be uncollectible. It already carries a $1,000 credit balance in Allowance for Doubtful Accounts. What bad debt expense should be recorded under the allowance method?

  1. $3,000
  2. $2,000 Correct answer.
  3. $1,000
  4. $4,000

Explanation

The required allowance is 5% of $60,000, or $3,000. Because $1,000 already exists in the allowance, only the $2,000 difference is charged to bad debt expense.

Question 48Financial Foundations and Core Accounting

A subsidiary whose base currency is euros records a sale in US dollars. Which rate convention does NetSuite apply to translate the transaction into the subsidiary's base currency?

  1. The rate at the subsidiary's inception
  2. The rate on the last day of the fiscal year
  3. The average rate for the fiscal year
  4. The rate on the transaction date from the currency exchange rate record Correct answer.

Explanation

Transactional amounts are translated at the exchange rate effective on the transaction date, which NetSuite sources from the currency exchange rate records. Period-end and average rates are used for translation of balances in consolidation, not for individual transaction amounts.

Question 49Financial Foundations and Core Accounting

A company records $9,000 of revenue in a closed period that should have been deferred to the following period. Which correction is most appropriate?

  1. Reduce next year's revenue by $9,000 without an entry
  2. Post a prior-period adjustment entry in the current open period to reverse the revenue and set up the deferral Correct answer.
  3. Change the closed period status to Open and edit the invoice
  4. Void the original invoice in the closed period

Explanation

Once a period is closed, corrections are made in the current open period through an adjusting entry rather than by altering closed results. The adjustment reverses the overstated revenue and records the appropriate deferred balance.

Question 50Financial Foundations and Core Accounting

A parent company holds a 100%-owned subsidiary. During consolidation, an intercompany sale of $15,000 from parent to subsidiary remains unpaid at period end. What must the consolidation process address?

  1. Translate the intercompany balance at the average rate and leave it in place
  2. Record the intercompany balance twice to preserve the audit trail
  3. Eliminate the intercompany receivable and payable so consolidated assets and liabilities are not overstated Correct answer.
  4. Report the intercompany balance as third-party revenue

Explanation

Consolidated statements present the group as a single economic entity, so balances owed between members are eliminated. Leaving the $15,000 receivable and payable in place would overstate both assets and liabilities of the group.