CCM CCM Trade Credit & Accounts Receivable 2

Question 1

What does 'days sales outstanding' (DSO) measure?

Accepted Answer

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

Answer

DSO calculates the average collection period for receivables, reflecting how efficiently the company converts sales to cash.

Question 2

A Best Possible DSO (BPDSO) calculation is used to:

Accepted Answer

Measure the theoretical minimum DSO if all customers paid exactly on time

Answer

BPDSO represents the DSO achievable if every invoice were paid exactly on its due date, serving as a benchmark for efficiency.

Question 3

Which of the following would INCREASE a company's DSO?

Accepted Answer

A rise in past-due receivables relative to sales

Answer

Rising past-due balances inflate the receivables balance relative to daily sales, which increases DSO.

Question 4

A cash application process in accounts receivable is responsible for:

Accepted Answer

Matching customer payments to open invoices accurately and timely

Answer

Cash application posts incoming payments to the correct invoices, keeping the AR ledger accurate for collections and reporting.

Question 5

A credit manager is evaluating a potential bad debt reserve. This reserve is BEST described as:

Accepted Answer

An accounting estimate of receivables that will likely not be collected

Answer

A bad debt reserve (allowance for doubtful accounts) is an estimated contra-asset account matching expected uncollectible receivables against revenue.

(CCM) Certified Credit Manager Practice Test

(CCM) Certified Credit Manager Practice Test

CCM CCM Trade Credit & Accounts Receivable 2