Accounts Receivable Test Answers
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What can happen if a company fails to read an
invoice?
Nothing happens because all invoices are standard
All invoices are electronic and can't be changed in
any way
Vendors may sue the company
Vendors may introduce clauses that companies cannot
agree to
What terms do sellers prefer to sell to
customers?
They prefer to sell to customers with no cash and
bad credit
On credit
Cash-in-advance, or CIA
They prefer to sell to customers with poor credit
What is an example of a modern software that
handles accounts payable?
PayInvoice
Quickbooks
CashBooks
APcash
The title of a good transfers to the buyer at
the shipping point. This is likely an example of a/an _____ shipping point.
FOB
same day
SEC
AMP
SCA
What must a debtor file in a voluntary
bankruptcy?
Articles of incorporation
Finra registration
A petition for liquidation
A subpoena
A subsidiary ledger for accounts receivable
has the information on which of the following
credit sales to clients
returns of goods
(All of these)
discounts
What is an advantage of a seller deciding to
offer its goods and services on credit?
(All of these)
potential increase in revenues
Increase efficiency of transactions
Convenience for buyers
True or False? A secured creditor is someone
who that has a legal right to the company's assets.
True
False
What does GAAP stand for?
Generally Acheivable Accounting Principles
Generally Accepted Accounting Principles
Generally Accepted Accounting Practices
Generally Acheivable Accounting Practices
When you have converted valuable financial
data to an authorized, unreadable state, what has happened to it?
It has been read
It has been decrypted
It has been compressed
It has been encrypted
Why are there conflicts between credit and
sales?
Because accounting puts pressure on sales to earn
more money
Because management puts pressure on the credit
department to offer more credit
The function of sales is contingent upon the credit
department granting credit to the customer
Because the accounts receivable department puts
pressure on them
What is one downside to electronic billing?
The setup cost
The reduction in paper waste
The increase in personnel to run the system
The speed of processing
What is the last resort when it comes to
collections?
Calling the authorities
Hiring a company like KPMG to settle the account
Use a third-party billing agency who may charge a
percentage of the total recovered
Reporting the company to the IRS
Sometimes when an account receivable is not
paid a business can turn to
a collection attorney
a collection agency
(All of these)
Which of the following is an example of an
accounts receivable?
a non trade receivable
(All of these)
a trade receivable
Why is the allowance method used over the
direct write off method when dealing with uncollectible accounts receivable?
(None of these)
The accounts receivable will be increased on the
balance sheet using allowance for doubful accounts
The accounts receivable will be decreased on the
balance sheet using allowance for doubful accounts
What does “DSO” stand for, and how is it
calculated?
Day sales outstanding. Gross payables / (Annual net
sales / 2000)
Day sales outstanding. Net income / (Annual net
sales / 365)
Day sales outstanding. Gross receivables / (Annual
net sales / 365)
Day sales outstanding. Gross receivables / (Annual
net sales / 12)
True or False? Net sale on a shipment of goods
is the total amount of goods sold minus the non-acceptable goods sold to a
customer
False
True
How should a collections fax be addressed to
be used to its greatest advantage?
They should have no address to maintain privacy
They should be addressed to the CEO
They should be addressed to the government
They should be addressed to the appropriate party
In order to secure you a line of credit, you
could use accounts receivable as _______.
account payables
collateral
cash payment
A common payment term for accounts receivable
is:
1 year
6 months
60 days
30 days
What do terms of an invoice suggest?
They indicate the satisfaction level of the seller
They indicate the amount of discounts the buyer can
receive on the next bill
Invoice terms indicate when the bill is to be paid
Quality of a product purchased
What is another term for a supplier?
Vendor
Distributor
Client
Which are examples of document tools that are
valuable to accounts receivable?
The Internet and overhead projectors
Pagers and cell phones
Electronic data interchange, and optical character
recognition
Televisions and radios
What is the defintion of accounts receivable?
A claim of payment for a business for services it
had done for a particular customer or client
(None of these)
The money from a business that it owes and is shown
on the balance sheet as a liability.
An example of nontrade receivables are
employee loans owed
insurance clams owed
tax refund owed
(All of these)
Who is the best contact for receiving
information about legal issues and credit?
IRS
FDIC
National Association of Credit Management
FINRA
Account receivables are categorized as current
assets assuming they are due within
1 year
15 days
6 months
30 days
True or False? With the help of aging one can
usually detemine uncollectable accounts receivable.
True
False
Which of the following is a good rule to
follow in accounts receivable?
Print and mail invoices as quickly as possible; the
sooner an invoice is sent, the sooner you get paid
Let management handle all invoices
Process invoices at the end of the first quarter
Send all invoices to accounts payable
What is a revolutionary solution to issues in
billing accuracy?
The credit card imprinter
Billing in person
Electronic billing
Manual billing
How often is a bad debt expense closed?
1 year
no time frame
30 days
60 days
True or False? A higher accounts receivable
turnover ratio is generally favorable.
False
True
Another name for an account receivable is
a trade payment
a trade payable
a trade receivable
a cash payment
True or False? The account payable for one
company corresponds to another company's account receivable.
True
False
When computing an average balance of accounts
receivable one should use
every day of the year
one day a month
one day a year
two days a year
What is bankruptcy?
Bankruptcy occurs when a business, person, or legal
entity cannot repay debts owed to its creditors
Bankruptcy occurs when a business, person, or legal
entity has reached its maximum earning potential
Bankruptcy occurs when a business, person, or legal
entity cannot pay dividends
Bankruptcy occurs when a business, person, or legal
entity has paid its debts owed to its creditors
An account receivable turnover ratio is 5,
while the company sales were $100,000. What is average balance of accounts
receivable?
$20000
$500000
$200000
(None of these)
Why is it central to the life of a business
that sales and credit departments work together?
It becomes easier for customers to get credit to
buy more items
It makes the processing of electronic payments
faster
Selling an item to the right party at the right
price is a team effort
It's not. It's better for credit and sales to
compete.
When a customer has no credit history, what is
a possible option to make a sale?
Security interest
Credit interest
There is no option
Credit option
What three important documents, and following
material, are critical in a financial statement for credit evaluation?
Income report, banking sheet, cash flow statement,
and anecdotes
Bank statement, balance sheet, cash flow statement,
and 10K
Income statement, balance sheet, cash flow
statement, and footnotes
Credit statement, balance sheet, accounting
statement, and notes
What are two examples of documents to carry
when visiting a customer for a collection?
A statement of the customer's account, and
documentation of all disputes
The customer's credit report and income statement
The customer's balance sheet and statement of cash
flows
The customer's invoice and a copy of their receipt
Which of the following are two common
bookkeeping methods?
the allowance method and indirect write-off method
the allowance method and direct write-off method
the income method and direct write-off method
What function do letters of credit serve?
They are documents stating the sellers intent to
default on payment
They are documents from the credit card company
urging payment of late charges
They are documents expressing a buyer's need to be
granted credit
They are documents stating the buyers intent to pay
the seller
Which method is required by the GAAP?
Direct write-off method
Allowance method
Indirect write-off method
(None of these)
Compute the accounts receivable collection
period if a company had $500,000 net credit sales and its accounts receivable
balance was $40,000.
$40,000*365/$500,000
$500,000*365/$40,000
$40,000/365
$500,000/365
Compute the accounts receivable collection
period if a company had $400,000 net credit sales and its accounts receivable
balance was $30,000.
$30,000*365/$400,000
$30,000/365
$400,000/365
$400,000*365/$30,000
What type of customers are letters of credit
most useful for?
National customers
International
Preferred customers
Local customers
True or False? Invoices are typically used by
the business and deliviered to the customer for an agreed payment time.
True
False
The benefit of a vague invoice is what?
A vague invoice is easier to comprehend.
There is no benefit. Vague invoices cause internal
billing problems.
Vague invoices give a company extra time to pay a
bill because their recipient is struggling to understand it.
A vague invoice means that terms are not
conditional.
True or False? Aging is often broken up into
several categories such as current, 1-30 days past due, 31-60 days past due
etc.
False
True
True or False? Sometimes a company will
provide a cash discount in order to incentivize a customer to pay in a timely
fashion.
True
False
True or False? A debtor can pay before its due
date.
False
True
Chapter 7 bankruptcy entails what activity?
The insolvency of a business
The liquidation of a business
Hostile takeovers
Leveraged buyouts
Company X has sales of $5,000,000 and its
average balance for accounts receivable was $50,000. What is the accounts
receivable turnover ratio?
1
50
100
10
A supplier is an unsecured creditor when
a supplier buys goods or services to a company
through credit.
a supplier provides goods or services to a company
through credit.
a supplier provides good or services to a company
through debit.
(None of these)
What is an excellent two-pronged approach to
collections?
Contact via email and make a random personal visit
Contact via personal letter and document everything
Contact via telephone, and document everything
Contact via fax and never contact them again
What data standard is competing with EDI, and
what does it mean?
XML, eXtensible MarkUp Language
XLS, excel language script
PDF, public document format
PHP, personal hyper paper
What is the standard calculation for accounts
receivable turnover?
(Inventory Turnover) / (Average Accounts Receivable)
(Net Credit Sales) / (Average Accounts Receivable)
(Net Cash Sales) / (Average Accounts Receivable)
(Average Accounts Receivable) / (Average Accounts
Payable)
(Net Credit Sales) / (Total Accounts Receivable)
How should sales staff be measured to assure
their performance is high?
They should be measured based on their
compatibility with the company
Measure them based on their return on assets
They should be measured based on customer
satisfaction
They should be measured based on attendance
When looking at a company's accounting
records, obtaining the accounts receivable will
always affect the net income
sometimes affect the net income
will not affect the net income
True or False? A postdated check can be
deposited and is considered money.
False
True
What is chapter 11 bankruptcy?
Chapter 11 bankruptcy is the competition of
businesses that causes them to earn more profit.
Chapter 11 bankruptcy is a liquidation of a
business that causes it to cease operation.
Chapter 11 bankruptcy is a reorganization of a
business that allows it to continue operation.
Chapter 11 bankruptcy is the merging of businesses
that causes them to continue operation.
What is the purpose of antitrust laws?
Antitrust laws prevent embezzlement
Antitrust laws prevent price-fixing
Antitrust laws prevent fraud
Antitrust laws prevent check floating
What is the ISO standard for financial
services messaging?
ISO9000
ISO 20022
SIO2022
ISO2000
How do you calculate the days' sales in
accounts receivable?
Subtract the accounts receivable turnover ratio by
the number of days in a calendar year
Divide the number of days in a calendar year by the
accounts receivable turnover ratio
Divide the accounts receivable turnover ratio by
the number of days in a calendar year
Multiply the number of days in a calendar year by
the accounts receivable turnover ratio
There are two tests for insolvency. What are
they?
The insolvency test and the valuation test
The liquidation test and the cash flow test
The bankruptcy test and the equity test
The balance Sheet Test, and the Equity Test
You have a customer whose financials are
deteriorating and credit limit is likely to be reduced. What is the best course
of action?
Legal intervention
A scheduled customer visit
An unscheduled customer visit
A visit to a collection agency
True or False? Signing a contract always
creates a liabiity or asset.
False
True
True or False? According to the IRS, bad debts
can always be used as an allowable deduction when computing profits for a
company.
True
False
What might a company do to increase their
float if they are deceitful?
Write false checks
Mail payment to the wrong company
Mail payment to the wrong part of a company
Forge checks
If a company is to be audited for credit
approval, what three statements must be provided?
Audited statements, income statements, credit
statements
Balance sheet, statement of retained earnings,
annual report
Audited statements, reviewed statements, compiled
statements
Business statements, reviewed statements, settled
statements
Who is chapter 12 bankruptcy intended for?
Hoteliers and fisherman
Small businesses
Family farmers or fisherman
Family farmers and restaurant owners
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