Accounts Payable & Receivable Management Flashcards

What document does a buyer issue to a supplier to formally authorize the purchase of goods or services?

Answer: Purchase order

A purchase order (PO) is the formal document issued by the buyer to the supplier authorizing the purchase at agreed terms.

Which accounts receivable aging category typically signals the highest risk of non-collection?

Answer: Over 90 days overdue

Invoices overdue by more than 90 days are least likely to be collected, representing the highest credit risk in an aging report.

What is the primary purpose of issuing a credit note to a customer in accounts receivable?

Answer: To reduce the amount owed by the customer

A credit note reduces the amount a customer owes, typically issued for returns, allowances, or billing errors.

In accounts payable, the 'three-way match' process compares which three documents?

Answer: Purchase order, receiving report, and supplier invoice

The three-way match verifies that the purchase order, receiving report (goods receipt), and supplier invoice all agree before payment is approved.

Payment terms stated as '2/10, net 30' mean the buyer may take a 2% discount if payment is made within how many days?

Answer: 10 days

The '2/10' portion means a 2% discount is available if the invoice is paid within 10 days; otherwise the full amount is due in 30 days.

Which method of estimating bad debt expense bases the allowance on a percentage of total credit sales for the period?

Answer: Percentage of sales method

The percentage of sales method (income statement approach) estimates bad debt expense as a fixed percentage of credit sales each period.

What is the primary function of an accounts receivable aging report?

Answer: To classify outstanding customer balances by how long they have been overdue

An AR aging report organizes outstanding balances into time buckets (current, 30, 60, 90+ days) to help assess collection risk and prioritize follow-up.