Financial Management for Project Managers Accounts Payable/Receivable 4

Question 1

A project manager is reviewing cash flow and notices a large gap between invoiced revenue and collected revenue. Which accounts receivable metric best explains this gap?

Accepted Answer

Days sales outstanding (DSO)

Answer

DSO quantifies the average number of days between invoicing and cash collection, directly explaining the revenue-to-cash gap.

Question 2

Which of the following best describes a factoring arrangement in accounts receivable?

Accepted Answer

Selling receivables to a third party at a discount to receive immediate cash

Answer

Factoring involves selling accounts receivable to a factor (third party) at a discount in exchange for immediate liquidity.

Question 3

What is the risk of having a very high accounts payable balance relative to project expenses?

Accepted Answer

It may indicate liquidity problems or an inability to pay obligations

Answer

An unusually high AP balance can signal that the project lacks cash to pay vendors, which may damage vendor relationships and project continuity.

Question 4

A project manager receives an invoice from a subcontractor that exceeds the approved PO by 12%. What is the correct course of action?

Accepted Answer

Process a change order to authorize the additional amount before approving payment

Answer

Any amount exceeding the approved PO requires a formal change order to authorize the additional expenditure before payment.

Question 5

Which of the following best describes the difference between cash basis and accrual basis accounting for project receivables?

Accepted Answer

Accrual basis records revenue when earned; cash basis records it when cash is received

Answer

Accrual accounting recognizes revenue when earned (work completed), while cash basis only recognizes it when payment is actually received.

Financial Management for Project Managers Practice Test

Financial Management for Project Managers Practice Test

Financial Management for Project Managers Accounts Payable/Receivable 4