Which of the following best describes accounts receivable?
a) Money owed by a company to its suppliers
b) Money owed by a company to its customers
c) Money owed by a company to its employees
d) Money owed by a company to its shareholders
Answer: b) Money owed by a company to its customers
Accounts receivable is recorded as a(n):
a) Asset
b) Liability
c) Expense
d) Revenue
Answer: a) Asset
Which accounting method is commonly used to record accounts receivable?
a) Cash basis accounting
b) Accrual basis accounting
c) FIFO method
d) LIFO method
Answer: b) Accrual basis accounting
What is the typical time period for accounts receivable to be collected?
a) 30 days
b) 60 days
c) 90 days
d) It varies depending on the business and industry
Answer: d) It varies depending on the business and industry
What is the main risk associated with accounts receivable?
a) The risk of inventory obsolescence
b) The risk of inflation
c) The risk of bad debts
d) The risk of asset depreciation
Answer: c) The risk of bad debts
Which financial statement includes information about accounts receivable?
a) Income statement
b) Balance sheet
c) Cash flow statement
d) Statement of retained earnings
Answer: b) Balance sheet
How can a company mitigate the risk of bad debts in accounts receivable?
a) Implementing stricter credit policies
b) Offering discounts for early payment
c) Conducting regular credit checks on customers
d) All of the above
Answer: d) All of the above
What happens when a company writes off a bad debt?
a) The accounts receivable balance increases
b) The accounts receivable balance decreases
c) The accounts payable balance increases
d) The accounts payable balance decreases
Answer: b) The accounts receivable balance decreases
Which accounting principle requires the estimation of bad debts in accounts receivable?
a) Matching principle
b) Revenue recognition principle
c) Conservatism principle
d) Cost principle
Answer: c) Conservatism principle
How does the aging of accounts receivable help in managing collections?
a) It determines the creditworthiness of customers
b) It identifies overdue accounts
c) It helps in setting collection priorities
d) All of the above
Answer: d) All of the above
What is the primary objective of managing accounts receivable?
a) Maximizing revenue
b) Minimizing bad debts
c) Accelerating cash inflows
d) Minimizing credit risk
Answer: c) Accelerating cash inflows
Which financial ratio measures the efficiency of collecting accounts receivable?
a) Debt-to-equity ratio
b) Current ratio
c) Accounts receivable turnover ratio
d) Return on investment ratio
Answer: c) Accounts receivable turnover ratio
When a company factors its accounts receivable, it means:
a) Selling its accounts receivable to a third party
b) Increasing its credit limits for customers
c) Offering extended payment terms to customers
d) Writing off bad debts
Answer: a) Selling its accounts receivable to a third party
Which of the following is an example of an accounts receivable aging report?
a) A list of all customers who have outstanding invoices
b) A summary of all sales made during a specific period
c) A breakdown of accounts receivable by customer and the number of days outstanding
d) A statement of all payments received from customers
Answer: c) A breakdown of accounts receivable by customer and the number of days outstanding
How does the allowance for doubtful accounts impact the balance sheet?
a) Increases assets
b) Increases liabilities
c) Decreases assets
d) Decreases equity
Answer: c) Decreases assets
Which method is commonly used to estimate uncollectible accounts receivable?
a) Direct write-off method
b) Percentage of sales method
c) First-in, first-out (FIFO) method
d) Last-in, first-out (LIFO) method
Answer: b) Percentage of sales method
What is the journal entry to record the write-off of a bad debt?
a) Debit Bad Debt Expense, Credit Accounts Receivable
b) Debit Accounts Receivable, Credit Bad Debt Expense
c) Debit Bad Debt Expense, Credit Allowance for Doubtful Accounts
d) Debit Allowance for Doubtful Accounts, Credit Bad Debt Expense
Answer: a) Debit Bad Debt Expense, Credit Accounts Receivable
What does the aging schedule help determine?
a) The credit limit for each customer
b) The credit terms offered to customers
c) The collectability of accounts receivable
d) The interest rate on accounts receivable
Answer: c) The collectability of accounts receivable
How does factoring accounts receivable affect a company’s financial statements?
a) It increases assets and liabilities
b) It increases assets and decreases liabilities
c) It decreases assets and liabilities
d) It has no impact on assets and liabilities
Answer: b) It increases assets and decreases liabilities
What is the purpose of an accounts receivable aging analysis?
a) To track sales revenue
b) To identify potential customers for future sales
c) To estimate the allowance for doubtful accounts
d) To determine the collectability of outstanding invoices
Answer: d) To determine the collectability of outstanding invoices
Which method is commonly used to recognize revenue for accounts receivable?
a) Straight-line method
b) Percentage of completion method
c) Cash basis method
d) Accrual basis method
Answer: d) Accrual basis method
What is the formula to calculate the accounts receivable turnover ratio?
a) Net Sales / Average Accounts Receivable
b) Beginning Accounts Receivable / Ending Accounts Receivable
c) Net Income / Average Accounts Receivable
d) Total Assets / Accounts Receivable
Answer: a) Net Sales / Average Accounts Receivable
How does a company typically collect accounts receivable?
a) Through cash payments
b) Through credit card payments
c) Through bank transfers
d) All of the above
Answer: d) All of the above
What is the impact on the balance sheet when a customer makes a partial payment on their accounts receivable?
a) Assets increase, liabilities increase
b) Assets decrease, liabilities decrease
c) Assets decrease, liabilities increase
d) Assets increase, liabilities decrease
Answer: b) Assets decrease, liabilities decrease
What is the aging method used for in accounts receivable management?
a) Determining the creditworthiness of customers
b) Assessing the liquidity of a company
c) Estimating the collectability of outstanding invoices
d) Calculating the interest on overdue payments
Answer: c) Estimating the collectability of outstanding invoices
Which financial statement provides information about the changes in accounts receivable over a specific period?
a) Income statement
b) Balance sheet
c) Cash flow statement
d) Statement of retained earnings
Answer: c) Cash flow statement
What is the role of a credit policy in managing accounts receivable?
a) Setting the interest rates for customers
b) Establishing guidelines for approving credit sales
c) Determining the allocation of accounts receivable to different departments
d) Specifying the depreciation method for accounts receivable
Answer: b) Establishing guidelines for approving credit sales
How does the allowance for doubtful accounts impact the income statement?
a) Increases revenues
b) Decreases revenues
c) Increases expenses
d) Decreases expenses
Answer: c) Increases expenses
What is the purpose of an accounts receivable aging report?
a) To track the payment history of each customer
b) To identify potential customers for cross-selling opportunities
c) To analyze the creditworthiness of suppliers
d) To assess the credit risk of outstanding invoices
Answer: d) To assess the credit risk of outstanding invoices
Which of the following is a potential consequence of ineffective accounts receivable management?
a) Increased cash flow
b) Higher collection costs
c) Improved customer satisfaction
d) Decreased sales revenue
Answer: b) Higher collection costs