CAT Accounts Payable & Receivable Management 2 — Questions and Answers
Question 1: A vendor statement reconciliation involves comparing which two records?
- The company's accounts payable ledger with the supplier's statement of account (Correct answer)
- The bank statement with the cash receipts journal
- The purchase order with the goods received note
- The payroll register with the general ledger
Correct answer: The company's accounts payable ledger with the supplier's statement of account
Vendor statement reconciliation matches the company's AP records against the supplier's statement to identify and resolve discrepancies.
Question 2: Which financial ratio measures how efficiently a company collects its accounts receivable?
- Current ratio
- Accounts receivable turnover ratio (Correct answer)
- Debt-to-equity ratio
- Quick ratio
Correct answer: Accounts receivable turnover ratio
The accounts receivable turnover ratio (net credit sales ÷ average AR) indicates how many times receivables are collected in a period.
Question 3: Under the allowance method, what is the net effect on total assets when a specific customer balance is written off as uncollectible?
- Total assets decrease by the write-off amount
- Total assets increase by the write-off amount
- Total assets remain unchanged (Correct answer)
- Total assets decrease by half the write-off amount
Correct answer: Total assets remain unchanged
Under the allowance method, the write-off debits Allowance for Doubtful Accounts and credits Accounts Receivable, leaving net realizable value and total assets unchanged.
Question 4: What is Days Sales Outstanding (DSO) used to measure in accounts receivable management?
- The number of days inventory is held before sale
- The average number of days it takes to collect payment after a sale (Correct answer)
- The number of days accounts payable remain unpaid
- The average age of a company's fixed assets
Correct answer: The average number of days it takes to collect payment after a sale
DSO (accounts receivable ÷ average daily credit sales) measures the average collection period, indicating how quickly credit sales are converted to cash.
Question 5: Under the direct write-off method for bad debts, when is bad debt expense recognized?
- At the end of each accounting period based on an estimate
- When a specific account is determined to be uncollectible (Correct answer)
- When a credit sale is first recorded
- When a customer makes a partial payment
Correct answer: When a specific account is determined to be uncollectible
The direct write-off method records bad debt expense only when a specific receivable is deemed uncollectible, which does not match expense with the related revenue.
Question 6: What does Days Payable Outstanding (DPO) measure for a company?
- How quickly the company converts inventory to sales
- The average number of days the company takes to pay its suppliers (Correct answer)
- The average age of the company's accounts receivable
- How many days of cash the company holds on hand
Correct answer: The average number of days the company takes to pay its suppliers
DPO (accounts payable ÷ average daily cost of goods sold) measures how long a company takes to pay its trade creditors.
Question 7: Which of the following best describes a remittance advice in the accounts payable process?
- A document authorizing the supplier to deliver goods
- A document sent with payment identifying which invoices are being paid (Correct answer)
- A formal request for a credit note from a supplier
- A statement of all outstanding invoices issued by a supplier
Correct answer: A document sent with payment identifying which invoices are being paid
A remittance advice accompanies a payment and specifies which invoices or portions of invoices are being settled, helping the supplier apply the payment correctly.
CAT Accounts Payable & Receivable Management 2
A vendor statement reconciliation involves comparing which two records?