AAT L3 Accounts Payable & Receivable Advanced 2

Question 1

In accounts receivable, a 'cash on delivery' (COD) customer arrangement means:

Accepted Answer

Payment is required at the time of delivery before goods are released

Answer

COD means the customer must pay for goods at the time of delivery; no credit is extended. This is used for new or high-risk customers to eliminate credit exposure.

Question 2

Which of the following is an example of a settlement discount (early payment discount)?

Accepted Answer

A 2% discount if the invoice is paid within 10 days rather than the standard 30-day term

Answer

A settlement (cash/prompt payment) discount incentivises early payment by offering a percentage reduction if the invoice is settled within a specified shorter period than the normal credit term.

Question 3

Factoring of trade receivables involves:

Accepted Answer

Selling the trade receivable book to a third party (factor) who advances a percentage of the face value immediately

Answer

Invoice factoring involves selling the receivables to a factor (finance company) who advances typically 70–90% of the face value upfront; the factor then collects the debts and remits the balance (less fees) to the business.

Question 4

Under IAS 2 (and AAT-level principles), trade receivables should be shown on the balance sheet at:

Accepted Answer

Net realisable value — gross amount less any allowance for doubtful debts

Answer

Trade receivables are presented at their expected recoverable amount — gross trade receivables minus any allowance for irrecoverable or doubtful debts — reflecting the amount the business expects to collect.

Question 5

A purchase order is raised by the buying company to:

Accepted Answer

Formally authorise and request goods or services from a supplier at agreed prices and terms

Answer

A purchase order is an internal document that authorises buying and instructs the supplier to provide specified goods or services; it forms the basis for the three-way match (PO, GRN, invoice) control.

AAT Level 3 Practice Test

AAT Level 3 Practice Test

AAT L3 Accounts Payable & Receivable Advanced 2