FAC Accounts Receivable & Accounts Payable Management 2 — Questions and Answers
Question 1: The primary purpose of a three-way match in accounts payable is to:
- Reconcile the bank statement with the general ledger
- Verify that the purchase order, receiving report, and vendor invoice agree before payment (Correct answer)
- Match vendor invoices to the accounts payable aging schedule
- Confirm that three approvals have been obtained for large payments
Correct answer: Verify that the purchase order, receiving report, and vendor invoice agree before payment
A three-way match compares the purchase order, receiving report, and vendor invoice to ensure quantities, prices, and terms are consistent before authorizing payment.
Question 2: The payment term '2/10, net 30' means the buyer:
- Receives a 10% discount if paid within 2 days, otherwise the full amount is due in 30 days
- Must pay 2% interest if payment is made after 10 days up to 30 days
- May take a 2% discount if paid within 10 days; otherwise the full amount is due in 30 days (Correct answer)
- Receives 2 months to pay, with a 10% late fee after 30 days
Correct answer: May take a 2% discount if paid within 10 days; otherwise the full amount is due in 30 days
2/10, net 30 offers a 2% discount as an incentive for early payment within 10 days; if not taken, the full invoice amount is due within 30 days.
Question 3: Which document in the AP process formally authorizes the disbursement of funds to a vendor?
- Purchase requisition
- Receiving report
- Payment voucher (voucher package) (Correct answer)
- Vendor statement
Correct answer: Payment voucher (voucher package)
A payment voucher or voucher package bundles the supporting documents (PO, receiving report, invoice) and serves as the internal authorization for issuing payment.
Question 4: An accrued liability in accounts payable represents:
- A vendor invoice received but not yet matched to a purchase order
- Goods or services received but for which no invoice has yet been received (Correct answer)
- A prepayment made to a vendor for future goods or services
- A disputed invoice placed on hold pending vendor resolution
Correct answer: Goods or services received but for which no invoice has yet been received
An accrued liability (accrued AP) is recorded when the company has received the benefit of goods or services but has not yet received the vendor's invoice at period-end.
Question 5: The accounts payable turnover ratio measures:
- How quickly a company collects payment from its customers
- How many times a company pays off its average accounts payable balance per period (Correct answer)
- The percentage of invoices paid within the discount period
- The ratio of AP to total current liabilities
Correct answer: How many times a company pays off its average accounts payable balance per period
AP turnover ratio equals total purchases divided by average accounts payable, indicating how frequently the company pays its suppliers during a period.
Question 6: When should a company typically take advantage of an early payment discount offered by a supplier?
- When the company has surplus cash and the annualized cost of not taking the discount exceeds the company's cost of capital (Correct answer)
- Always, since discounts always improve profitability regardless of cash position
- Only when the discount rate is greater than 5%
- Only when the full payment is due in more than 45 days
Correct answer: When the company has surplus cash and the annualized cost of not taking the discount exceeds the company's cost of capital
Taking the discount is financially rational when the annualized savings rate exceeds the company's cost of borrowing or opportunity cost of the cash used.
Question 7: A vendor statement reconciliation in accounts payable involves:
- Confirming vendor bank account details before issuing a wire transfer
- Comparing the vendor's statement of open invoices to the company's AP subledger to identify discrepancies (Correct answer)
- Reviewing the vendor's financial statements to assess credit risk
- Matching vendor payment terms to the approved vendor master file
Correct answer: Comparing the vendor's statement of open invoices to the company's AP subledger to identify discrepancies
Vendor statement reconciliation ensures the amounts the vendor claims are owed match the company's own AP records, resolving differences due to timing, credits, or errors.
FAC Accounts Receivable & Accounts Payable Management 2
The primary purpose of a three-way match in accounts payable is to: