FAC Accounts Receivable & Accounts Payable Management 3

Question 1

What distinguishes accounts receivable factoring from accounts receivable discounting?

Accepted Answer

Factoring involves selling receivables outright to a third party; discounting uses them as collateral for a loan

Answer

Factoring is used only for international invoices; discounting is for domestic invoices

Answer

Discounting transfers credit risk to the lender; factoring keeps risk with the borrower

Answer

Factoring applies only to invoices under $10,000; discounting applies to larger balances

Question 2

Which internal control is most effective at preventing duplicate payments in accounts payable?

Accepted Answer

Stamping or marking invoices as 'PAID' immediately upon payment

Answer

Requiring dual signatures on all checks over $500

Answer

Performing monthly bank reconciliations

Answer

Segregating the duties of invoice approval and check signing

Question 3

The approximate annualized cost of forgoing the discount under terms '2/10, net 30' is closest to:

Accepted Answer

37%

Answer

2%

Answer

12%

Answer

24%

Question 4

When a company pledges its accounts receivable as collateral for a line of credit, this arrangement is called:

Accepted Answer

Assignment of receivables

Answer

Factoring

Answer

Securitization

Answer

Consignment

Question 5

Under GAAP, the allowance for doubtful accounts is classified on the balance sheet as:

Accepted Answer

A contra-asset account that reduces gross accounts receivable

Answer

A current liability offsetting accounts receivable

Answer

An operating expense on the income statement

Answer

A long-term reserve included in stockholders' equity

Question 6

An accounts payable aging report is primarily used to:

Accepted Answer

Monitor outstanding vendor invoices by due date to manage cash outflows and avoid late fees

Answer

Identify customers who are behind on payments to the company

Answer

Calculate the AP turnover ratio for financial analysis

Answer

Determine which vendors should receive early payment discounts

Question 7

Which of the following best describes the 'net realizable value' of accounts receivable?

Accepted Answer

Gross accounts receivable minus the allowance for doubtful accounts

Answer

The total face value of all outstanding invoices

Answer

The present value of future cash flows discounted at the market rate

Answer

Accounts receivable net of any sales discounts taken by customers