CAT Accounts Payable & Receivable Management 1 — Questions and Answers
Question 1: What document does a buyer issue to a supplier to formally authorize the purchase of goods or services?
- Remittance advice
- Purchase order (Correct answer)
- Debit memo
- Goods received note
Correct answer: Purchase order
A purchase order (PO) is the formal document issued by the buyer to the supplier authorizing the purchase at agreed terms.
Question 2: Which accounts receivable aging category typically signals the highest risk of non-collection?
- Current (0–30 days)
- 31–60 days overdue
- 61–90 days overdue
- Over 90 days overdue (Correct answer)
Correct 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.
Question 3: What is the primary purpose of issuing a credit note to a customer in accounts receivable?
- To request early payment
- To reduce the amount owed by the customer (Correct answer)
- To increase the invoice total
- To confirm receipt of payment
Correct 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.
Question 4: In accounts payable, the 'three-way match' process compares which three documents?
- Invoice, bank statement, and journal entry
- Purchase order, receiving report, and supplier invoice (Correct answer)
- Budget, purchase order, and payment voucher
- Credit note, invoice, and remittance advice
Correct 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.
Question 5: Payment terms stated as '2/10, net 30' mean the buyer may take a 2% discount if payment is made within how many days?
- 2 days
- 10 days (Correct answer)
- 20 days
- 30 days
Correct 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.
Question 6: Which method of estimating bad debt expense bases the allowance on a percentage of total credit sales for the period?
- Aging of receivables method
- Direct write-off method
- Percentage of sales method (Correct answer)
- Net realizable value method
Correct 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.
Question 7: What is the primary function of an accounts receivable aging report?
- To calculate depreciation on trade receivables
- To classify outstanding customer balances by how long they have been overdue (Correct answer)
- To record new sales transactions by date
- To reconcile accounts receivable with the general ledger
Correct 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.
CAT Accounts Payable & Receivable Management 1
What document does a buyer issue to a supplier to formally authorize the purchase of goods or services?