ABA ABA Credit & Collections Management 2

Question 1

Under the allowance method, how is bad debt expense recorded?

Accepted Answer

Debit Bad Debt Expense, Credit Allowance for Doubtful Accounts

Answer

Under the allowance method, bad debt expense is recorded by debiting Bad Debt Expense and crediting Allowance for Doubtful Accounts.

Question 2

What is a promissory note in credit management?

Accepted Answer

A written promise to pay a specific amount at a specific time

Answer

A promissory note is a written, legally binding agreement in which one party promises to pay a specific amount to another party at a defined future date.

Question 3

Which collection letter sequence is typically followed when a customer becomes delinquent?

Accepted Answer

Reminder, demand letter, final notice, legal action

Answer

The standard collection sequence progresses from a gentle reminder to a demand letter, then a final notice, and ultimately legal action if payment is not received.

Question 4

What is the 'net 30' payment term?

Accepted Answer

Payment is due within 30 days of the invoice date

Answer

'Net 30' means the full invoice amount is due within 30 days of the invoice date with no discount applied.

Question 5

What does '2/10 net 30' mean on an invoice?

Accepted Answer

2% discount if paid within 10 days, full amount due in 30 days

Answer

'2/10 net 30' means the customer can take a 2% discount if they pay within 10 days; otherwise, the full amount is due within 30 days.

(ABA) Accredited Business Accountant Practice Test

(ABA) Accredited Business Accountant Practice Test

ABA ABA Credit & Collections Management 2