Accounts Payable/Receivable Flashcards
7 cards from real Financial Management for Project Managers 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 Payable/Receivable flashcards as text
A project's largest customer consistently pays 45 days late. What is the best long-term solution?
Answer: Renegotiate contract payment terms or add late payment penalties
Renegotiating terms or adding contractual late fees creates a financial incentive for the customer to pay on time.
In project financial management, what is a retainage clause in accounts receivable?
Answer: A percentage of each payment withheld until project completion as a performance guarantee
Retainage is a portion (typically 5-10%) of each progress payment held back by the client until the project is satisfactorily completed.
Which approach best helps a project manager reduce the risk of bad debts in accounts receivable?
Answer: Conducting credit checks before extending credit to new clients
Credit checks assess a client's ability to pay before credit is extended, reducing the likelihood of future bad debts.
A project manager discovers that the same vendor invoice was paid twice. Which internal control failure most likely allowed this?
Answer: Lack of a three-way match process
A three-way match between the PO, receiving report, and invoice would have flagged the duplicate before the second payment was processed.
When a project uses milestone-based billing, how does this affect accounts receivable timing?
Answer: Invoices are issued only when defined project milestones are achieved
Milestone billing ties invoice generation to the completion of specific deliverables, meaning AR is created only at those defined points.
A project manager is calculating working capital. Which of the following correctly describes the relationship between AP and working capital?
Answer: Increasing AP decreases working capital because it raises current liabilities
Working capital = current assets − current liabilities; higher AP raises current liabilities, which reduces working capital.
Which of the following is the most effective way to accelerate cash collection from accounts receivable on a project?
Answer: Offer early payment discounts and send invoices promptly after milestones
Prompt invoicing combined with early payment incentives motivates clients to pay sooner, improving project cash flow.