CCE Trade Credit & Accounts Receivable Management

Question 1

A company has net credit sales of $2,400,000 and average accounts receivable of $200,000. What is the accounts receivable turnover ratio?

Accepted Answer

12 times

Answer

AR Turnover = Net Credit Sales / Average AR = $2,400,000 / $200,000 = 12 times.

Question 2

What does Days Sales Outstanding (DSO) measure?

Accepted Answer

The average number of days it takes to collect payment after a sale

Answer

DSO measures the average number of days between making a credit sale and receiving payment, indicating collection efficiency.

Question 3

Credit terms of '2/10 net 30' mean that a buyer receives a 2% discount if payment is made within 10 days; otherwise, the full amount is due within 30 days. What is the annualized cost of NOT taking this discount?

Accepted Answer

approximately 36.7%

Answer

Annualized cost = (Discount% / (1 - Discount%)) × (365 / (Net Days - Discount Days)) = (2/98) × (365/20) ≈ 37.2%, closest to 36.7%.

Question 4

An accounts receivable aging schedule is PRIMARILY used to:

Accepted Answer

Identify the age distribution of outstanding receivables to assess collection risk

Answer

An aging schedule categorizes receivables by how long they have been outstanding, helping credit managers identify at-risk accounts and prioritize collections.

Question 5

Which of the following BEST describes trade credit?

Accepted Answer

Credit extended by one business to another for the purchase of goods or services

Answer

Trade credit is credit extended by a seller (supplier) to a buyer (business customer) allowing the purchase of goods or services on deferred payment terms.

CCE - Certified Credit Executive Practice Test

CCE - Certified Credit Executive Practice Test

CCE Trade Credit & Accounts Receivable Management