Accounts Receivable and Accounts Payable Flashcards
7 cards from real CPB / BookKeeping practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Accounts Receivable and Accounts Payable flashcards as text
What is the primary purpose of a purchase order (PO) in the accounts payable process?
Answer: To formally authorize a purchase and document agreed terms before goods are received
A purchase order is issued by the buyer before goods are received, formally authorizing the purchase and documenting quantities, prices, and terms agreed upon.
A 'three-way match' in accounts payable involves comparing which three documents?
Answer: Purchase order, receiving report, and vendor invoice
A three-way match compares the purchase order (what was ordered), the receiving report (what was received), and the vendor invoice (what is being billed) to ensure all three agree before payment is approved.
Net realizable value (NRV) of accounts receivable is calculated as:
Answer: Gross accounts receivable minus the allowance for doubtful accounts
NRV equals gross accounts receivable minus the Allowance for Doubtful Accounts, representing the amount the company actually expects to collect.
What is a remittance advice?
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 paid, allowing the recipient to properly apply the payment.
Days Payable Outstanding (DPO) measures:
Answer: The average number of days a company takes to pay its suppliers
DPO indicates the average number of days a company takes to pay its vendors, calculated as (Accounts Payable ÷ Cost of Goods Sold) × Number of Days.
Days Sales Outstanding (DSO) is used to measure:
Answer: The average number of days it takes to collect payment after a sale is made
DSO measures the efficiency of the collections process, calculated as (Accounts Receivable ÷ Net Credit Sales) × Number of Days — a lower DSO indicates faster collection.
When a customer returns merchandise previously purchased on credit, the seller's journal entry is:
Answer: Debit Sales Returns and Allowances, Credit Accounts Receivable
A customer return reduces revenue through Sales Returns and Allowances (debit) and reduces the outstanding receivable balance (credit) since no cash changes hands.