Foreign Exchange Risk Arises When

question 32

Multiple Choice

Foreign exchange risk arises when:

• A) business transactions are denominated in foreign currencies.
• B) sales are made to customers in a domestic country.
• C) goods or services purchased from suppliers in a foreign country are denominated in domestic currency.
• D) auditing reports are prepared in a foreign currency.

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Definitions:

Contra Asset Account

An account on a company's balance sheet representing deductions from the gross amount of an asset, such as accumulated depreciation on fixed assets.

Allowance for Doubtful Accounts

An accounting method used to estimate the portion of a company's receivables that may not be collected, reducing the accounts receivable balance accordingly.

Uncollectible Accounts

Uncollectible accounts are receivables that a company deems uncollectable and likely will not be recovered, often written off as a bad debt expense.

Percent of Sales Method

A financial forecasting approach in which accounts are projected to increase as a percentage of the projected sales level.