Accounts Payable & Receivable Advanced Flashcards
6 cards from real AAT L3 practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Accounts Payable & Receivable Advanced flashcards as text
In accounts receivable, a 'cash on delivery' (COD) customer arrangement means:
Answer: Payment is required at the time of delivery before goods are released
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.
Which of the following is an example of a settlement discount (early payment discount)?
Answer: A 2% discount if the invoice is paid within 10 days rather than the standard 30-day term
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.
Factoring of trade receivables involves:
Answer: Selling the trade receivable book to a third party (factor) who advances a percentage of the face value immediately
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.
Under IAS 2 (and AAT-level principles), trade receivables should be shown on the balance sheet at:
Answer: Net realisable value — gross amount less any allowance for doubtful debts
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.
A purchase order is raised by the buying company to:
Answer: Formally authorise and request goods or services from a supplier at agreed prices and terms
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.
The three-way match in accounts payable refers to matching:
Answer: Purchase order, goods received note, and supplier invoice
Three-way matching ensures the supplier's invoice agrees with the original purchase order (price, terms) and the goods received note (quantities received) before authorising payment — a key internal control.