ABA Accounts Payable & Receivable Management 2 — Questions and Answers
Question 1: Days Sales Outstanding (DSO) is calculated using which formula?
- (Accounts Receivable / Net Credit Sales) × 365 (Correct answer)
- (Net Credit Sales / Accounts Receivable) × 365
- Net Credit Sales / Average Accounts Receivable
- Accounts Receivable × Net Credit Sales / 365
Correct answer: (Accounts Receivable / Net Credit Sales) × 365
DSO = (Accounts Receivable / Net Credit Sales) × 365, measuring the average number of days it takes to collect payment after a sale.
Question 2: What does a 'three-way match' in accounts payable verify?
- Customer name, invoice date, and payment amount
- Purchase order, receiving report, and vendor invoice (Correct answer)
- Credit limit, payment terms, and vendor rating
- General ledger, trial balance, and bank statement
Correct answer: Purchase order, receiving report, and vendor invoice
The three-way match compares the purchase order, receiving report, and vendor invoice to ensure the quantity and price are consistent before authorizing payment.
Question 3: Under credit terms of '2/10, net 30,' a buyer receives a 2% discount if payment is made within how many days?
- 2
- 10 (Correct answer)
- 12
- 30
Correct answer: 10
The '2/10' portion means a 2% discount is available if the invoice is paid within 10 days of the invoice date.
Question 4: When a company factors its receivables with recourse, the risk of uncollectibility:
- Transfers entirely to the factor
- Remains with the selling company (Correct answer)
- Is shared 50/50 between buyer and factor
- Is eliminated by the allowance account
Correct answer: Remains with the selling company
Factoring with recourse means the selling company retains the obligation to reimburse the factor if customers do not pay, so the credit risk stays with the seller.
Question 5: Which aging bucket is most likely to trigger a bad debt write-off in a standard AR aging schedule?
- Current (0–30 days)
- 31–60 days past due
- 61–90 days past due
- Over 90 days past due (Correct answer)
Correct answer: Over 90 days past due
Receivables in the 'over 90 days past due' bucket carry the highest probability of being uncollectible and are most frequently targeted for write-off or high reserve rates.
Question 6: The accounts payable turnover ratio is best used to measure:
- How quickly a company collects from customers
- How efficiently a company pays its suppliers (Correct answer)
- The profitability of purchasing decisions
- The credit quality of the vendor base
Correct answer: How efficiently a company pays its suppliers
AP turnover = Cost of Goods Sold (or total purchases) / Average Accounts Payable, indicating how many times a company pays off its suppliers within a period.
Question 7: A debit balance in the Allowance for Doubtful Accounts before the period-end adjustment indicates:
- The company collected more than expected
- Actual write-offs exceeded prior estimates (Correct answer)
- Revenue was understated in the prior period
- The aging method was not applied
Correct answer: Actual write-offs exceeded prior estimates
A debit balance (rather than the normal credit balance) in the allowance account means actual write-offs during the period exceeded the prior estimate, leaving the contra account temporarily over-used.
ABA Accounts Payable & Receivable Management 2
Days Sales Outstanding (DSO) is calculated using which formula?