An Accounting Firm Has Been Hired by a Large Computer

question 25

True/False

An accounting firm has been hired by a large computer company to determine whether the proportion of accounts receivables with errors in one division (Division 1) exceeds that of the second division (Division 2). The managers believe that such a difference may exist because of the lax standards employed by the first division. To conduct the test, the accounting firm has selected random samples of accounts from each division with the following results. Based on this information and using a significance level equal to 0.05, the test statistic for the hypothesis test is approximately 1.153 and, therefore, the null hypothesis is not rejected.

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Definitions:

Allowance for Doubtful Accounts

A contra-asset account that reduces accounts receivable to reflect the estimated amounts that are expected to be uncollectible.

Uncollectible Percentage

An estimated fraction of accounts receivable that a company does not expect to collect.

Aging

A method used in accounting to categorize accounts receivables based on the length of time an invoice has been outstanding.

Allowance Account

An account used in accounting to reduce the value of accounts receivable to a more realistic amount by accounting for potential bad debts.