ABA ABA Credit & Collections Management 3

Question 1

What is the Five Cs of Credit framework used for?

Accepted Answer

Evaluating a borrower's creditworthiness

Answer

The Five Cs of Credit (Character, Capacity, Capital, Collateral, Conditions) is a framework used to assess a borrower's creditworthiness.

Question 2

Which of the Five Cs of Credit refers to a borrower's ability to repay a loan from income?

Accepted Answer

Capacity

Answer

'Capacity' in the Five Cs of Credit refers to a borrower's ability to repay the debt based on their income and existing financial obligations.

Question 3

What is a credit limit?

Accepted Answer

The maximum amount of credit extended to a customer

Answer

A credit limit is the maximum amount of credit a lender or business will extend to a customer at any given time.

Question 4

What is 'factoring' in accounts receivable management?

Accepted Answer

Selling accounts receivable to a third party at a discount

Answer

Factoring involves selling accounts receivable to a financial intermediary (factor) at a discount in exchange for immediate cash.

Question 5

Which report helps management identify customers who consistently pay late?

Accepted Answer

Accounts receivable aging report

Answer

An accounts receivable aging report shows outstanding invoices categorized by age, making it easy to identify consistently late-paying customers.

(ABA) Accredited Business Accountant Practice Test