CAP CAP Accounts Payable and Receivable 2 — Questions and Answers
Question 1: A three-way match in accounts payable compares which three documents?
- Invoice, purchase order, and receiving report (Correct answer)
- Invoice, sales order, and shipping notice
- Purchase order, check, and bank statement
- Receiving report, credit memo, and debit memo
Correct answer: Invoice, purchase order, and receiving report
A three-way match verifies that the vendor invoice, purchase order, and receiving report all agree before approving payment.
Question 2: Which journal entry correctly records a sale of $500 on credit?
- Debit Cash $500; Credit Sales Revenue $500
- Debit Accounts Receivable $500; Credit Sales Revenue $500 (Correct answer)
- Debit Sales Revenue $500; Credit Accounts Receivable $500
- Debit Cash $500; Credit Accounts Payable $500
Correct answer: Debit Accounts Receivable $500; Credit Sales Revenue $500
A credit sale increases Accounts Receivable (debit) and Sales Revenue (credit) because cash has not yet been received.
Question 3: What is a debit memo in the context of accounts payable?
- A document reducing the amount owed to a vendor due to returns or errors (Correct answer)
- A document the vendor sends to increase the invoice amount
- A bank notification of an NSF check
- A request for a new vendor account
Correct answer: A document reducing the amount owed to a vendor due to returns or errors
A debit memo is issued by the buyer to reduce the amount owed to a vendor, typically because goods were returned or an overcharge was identified.
Question 4: Which method records bad debt expense in the same period as the related sale?
- Direct write-off method
- Cash basis method
- Allowance method (Correct answer)
- Accrual recovery method
Correct answer: Allowance method
The allowance method estimates and records bad debt expense in the period of sale, matching expenses to revenues per GAAP.
Question 5: When a previously written-off account is collected, the first step under the allowance method is to:
- Debit Cash and credit Bad Debt Expense
- Reverse the write-off by reinstating the receivable (Correct answer)
- Credit Accounts Receivable directly
- Debit Allowance for Doubtful Accounts only
Correct answer: Reverse the write-off by reinstating the receivable
The write-off must first be reversed to reinstate the receivable before recording the cash collection.
Question 6: The accounts payable turnover ratio measures:
- How quickly a company collects from customers
- How often a company pays its suppliers in a period (Correct answer)
- The ratio of cash to current liabilities
- Total credit purchases divided by average inventory
Correct answer: How often a company pays its suppliers in a period
The accounts payable turnover ratio equals total credit purchases divided by average accounts payable, indicating how frequently a company pays suppliers.
CAP CAP Accounts Payable and Receivable 2
A three-way match in accounts payable compares which three documents?