CAP Accounts Payable and Receivable Flashcards

Which internal control best prevents duplicate vendor payments in accounts payable?

Answer: Stamping invoices 'PAID' immediately upon payment

Marking invoices 'PAID' immediately after payment prevents the same invoice from being submitted and paid a second time.

What does Days Sales Outstanding (DSO) measure in accounts receivable management?

Answer: The average number of days to collect payment from customers

DSO measures the average number of days it takes a company to collect payment after a sale is made, indicating collection efficiency.

Under GAAP, which basis is required for recognizing accounts receivable?

Answer: Accrual basis

GAAP requires accrual basis accounting, so accounts receivable are recognized when earned, regardless of when cash is collected.

A vendor issues a credit memo to a buyer most commonly because:

Answer: Goods were returned or an overcharge occurred

A credit memo from the vendor reduces the amount the buyer owes, typically due to returned merchandise or a billing error.

Which ratio indicates how many days on average a company takes to pay its suppliers?

Answer: Days Payable Outstanding

Days Payable Outstanding (DPO) = (Average Accounts Payable / Cost of Goods Sold) × 365, showing average days to pay suppliers.

What is the correct journal entry when a customer pays their outstanding invoice of $1,000?

Answer: Debit Cash $1,000; Credit Accounts Receivable $1,000

Receiving payment on a receivable increases Cash (debit) and decreases Accounts Receivable (credit) since the obligation has been settled.