CAP Accounts Payable and Receivable Flashcards

A three-way match in accounts payable compares which three documents?

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.

Which journal entry correctly records a sale of $500 on credit?

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.

What is a debit memo in the context of accounts payable?

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.

Which method records bad debt expense in the same period as the related sale?

Answer: Allowance method

The allowance method estimates and records bad debt expense in the period of sale, matching expenses to revenues per GAAP.

When a previously written-off account is collected, the first step under the allowance method is to:

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.

The accounts payable turnover ratio measures:

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.