FAC Accounts Receivable & Accounts Payable Management

Question 1

What does the payment term 'net 30' mean in accounts receivable?

Accepted Answer

Payment is due within 30 days of the invoice date

Answer

Net 30 means the full invoice amount is due within 30 calendar days from the invoice date, with no early-payment discount offered.

Question 2

An accounts receivable aging schedule categorizes outstanding receivables primarily by:

Accepted Answer

The length of time invoices have been outstanding

Answer

An AR aging schedule groups outstanding invoices by how long they have been unpaid (e.g., 0–30 days, 31–60 days), helping identify overdue accounts.

Question 3

Under the direct write-off method, a bad debt is recorded when:

Accepted Answer

Management decides a specific account is uncollectible

Answer

The direct write-off method recognizes bad debt expense only when a specific receivable is deemed uncollectible, rather than using estimates.

Question 4

The allowance method of accounting for uncollectible accounts is preferred under GAAP because it:

Accepted Answer

Matches bad debt expense to the period revenue was earned

Answer

The allowance method adheres to the matching principle by estimating and recording bad debt expense in the same period the related revenue is recognized.

Question 5

When a customer pays an account that was previously written off under the allowance method, the company should:

Accepted Answer

Reverse the write-off entry and then record the cash receipt

Answer

The write-off must first be reversed to reinstate the receivable, and then the cash receipt is recorded normally, ensuring the allowance account remains accurate.

(FAC) Finance and Accounting Certification Practice Test

(FAC) Finance and Accounting Certification Practice Test

FAC Accounts Receivable & Accounts Payable Management