CAT Accounts Payable & Receivable Management 3

Question 1

What is 'factoring' in accounts receivable management?

Accepted Answer

Selling accounts receivable to a third party to obtain immediate cash

Answer

Factoring involves selling receivables to a factor (financial institution) at a discount in exchange for immediate cash, transferring collection risk.

Question 2

What is the normal balance (debit or credit) of the Accounts Payable account in the general ledger?

Accepted Answer

Credit, because it represents a liability

Answer

Accounts Payable is a liability account and carries a normal credit balance, increasing when goods or services are purchased on credit.

Question 3

A company sets a credit limit of $5,000 for a new customer. What is the primary purpose of establishing this limit?

Accepted Answer

To control the maximum credit exposure and limit bad debt risk

Answer

Credit limits cap the amount of outstanding receivables from any single customer, reducing the company's exposure to potential bad debts.

Question 4

When a customer returns merchandise previously purchased on credit, which journal entry correctly records the return in the seller's books?

Accepted Answer

Debit Sales Returns and Allowances; Credit Accounts Receivable

Answer

A sales return reduces revenue (debit Sales Returns and Allowances) and reduces the receivable owed by the customer (credit Accounts Receivable).

Question 5

Which accounts payable control helps prevent duplicate payments to the same supplier?

Accepted Answer

Stamping or marking each invoice as 'PAID' immediately upon payment

Answer

Marking invoices as 'PAID' upon disbursement (or voiding them in the system) prevents the same invoice from being submitted and processed a second time.

(CAT) Certified Accounting Technician Practice Test

(CAT) Certified Accounting Technician Practice Test

CAT Accounts Payable & Receivable Management 3