AAT L3 Accounts Payable & Receivable Advanced 4

Question 1

An overdue customer account is passed to a debt collection agency when:

Accepted Answer

Internal collection attempts have failed and the debt is significantly overdue

Answer

Debt collection agencies are used as a last resort after internal credit control has failed to recover an overdue debt; they typically charge a commission on amounts recovered.

Question 2

The purpose of a customer credit application form is to:

Accepted Answer

Collect information needed to assess whether to extend credit and set appropriate credit terms

Answer

A credit application collects the customer's business details, financial information, bank and trade references, and directors' details, enabling the business to make an informed credit assessment before granting credit.

Question 3

Which of the following ratios measures how quickly customers are paying their invoices?

Accepted Answer

Receivables days (debtor days)

Answer

Receivables days = (Trade receivables / Revenue) × 365. It shows the average number of days customers take to pay, enabling comparison against credit terms and industry benchmarks.

Question 4

Discounts allowed are recorded in the accounts as:

Accepted Answer

A debit to discounts allowed expense and a credit to trade receivables

Answer

Discounts allowed are given to customers for early payment; they are an expense (debit Discounts Allowed) and reduce the trade receivable balance (credit Trade Receivables).

Question 5

A business has total receivables of £120,000 and annual credit sales of £600,000. What are the receivables days?

Accepted Answer

73 days

Answer

Receivables days = (£120,000 / £600,000) × 365 = 0.2 × 365 = 73 days. This means customers take on average 73 days to pay.

AAT Level 3 Practice Test

AAT Level 3 Practice Test

AAT L3 Accounts Payable & Receivable Advanced 4