Accounts Receivable MCQs
What is accounts receivable?
a) Money that a company owes to its creditors
b) Money that a company owes to its customers
c) Money that a company’s customers owe to the company
d) Money that a company owes to its employees
Answer: c) Money that a company’s customers owe to the company
Which of the following is an example of accounts receivable?
a) Cash in the bank account
b) Inventory held by the company
c) Money that a customer owes to the company for goods or services provided
d) Equipment owned by the company
Answer: c) Money that a customer owes to the company for goods or services provided
What is the purpose of managing accounts receivable?
a) To ensure that customers pay their bills on time
b) To increase the company’s profits
c) To decrease the company’s liabilities
d) All of the above
Answer: d) All of the above
Which of the following is a common method of managing accounts receivable?
a) Sending invoices to customers
b) Offering discounts for early payment
c) Enforcing penalties for late payment
d) All of the above
Answer: d) All of the above
Accounts Receivable MCQs
What is the accounts receivable turnover ratio?
a) The ratio of accounts receivable to accounts payable
b) The ratio of accounts receivable to total assets
c) The ratio of net credit sales to accounts receivable
d) The ratio of accounts receivable to net income
Answer: c) The ratio of net credit sales to accounts receivable
Which accounting principle is related to accounts receivable?
a) Matching principle
b) Revenue recognition principle
c) Historical cost principle
d) Materiality principle
Answer: b) Revenue recognition principle
What happens when a company sells its accounts receivable to a third-party company?
a) The company gets cash immediately but loses some of the value of the accounts receivable
b) The company retains ownership of the accounts receivable but gets a loan based on them
c) The company no longer has any responsibility for collecting the accounts receivable
d) None of the above
Answer: a) The company gets cash immediately but loses some of the value of the accounts receivable
Which of the following is an advantage of offering discounts for early payment of accounts receivable?
a) Increases the likelihood of timely payment
b) Decreases the risk of bad debts
c) Reduces the cost of financing
d) All of the above
Answer: d) All of the above
Accounts Receivable MCQs
Which of the following is an example of a contra account to accounts receivable?
a) Sales revenue
b) Allowance for doubtful accounts
c) Prepaid expenses
d) Accumulated depreciation
Answer: b) Allowance for doubtful accounts
What is the aging method of estimating bad debts?
a) Estimating bad debts as a percentage of total credit sales
b) Writing off bad debts as they become uncollectible
c) Categorizing accounts receivable based on their age and applying different percentages to each category
d) None of the above
Answer: c) Categorizing accounts receivable based on their age and applying different percentages to each category
What is the difference between accounts receivable and accounts payable?
a) Accounts receivable are amounts owed to the company, while accounts payable are amounts owed by the company
b) Accounts receivable are amounts owed by the company, while accounts payable are amounts owed to the company
c) Accounts receivable are an asset, while accounts payable are a liability
d) None of the above
Answer: a) Accounts receivable are amounts owed to the company, while accounts payable are amounts owed by the company
What is the formula for calculating the accounts receivable turnover ratio?
a) Net credit sales / accounts receivable
b) Accounts receivable / total assets
c) Accounts receivable / net income
d) None of the above
Answer: a) Net credit sales / accounts receivable
Accounts Receivable MCQs
Which financial statement includes information about accounts receivable?
a) Income statement
b) Balance sheet
c) Statement of cash flows
d) None of the above
Answer: b) Balance sheet
What is the purpose of an accounts receivable aging report?
a) To track the progress of accounts receivable collections
b) To identify accounts that are at risk of becoming bad debts
c) To determine the effectiveness of the company’s credit and collection policies
d) All of the above
Answer: d) All of the above
What is the difference between factoring and accounts receivable financing?
a) Factoring involves selling accounts receivable to a third-party company, while accounts receivable financing involves using accounts receivable as collateral for a loan
b) Factoring and accounts receivable financing are the same thing
c) Factoring and accounts receivable financing both involve borrowing money against accounts receivable
d) None of the above
Answer: a) Factoring involves selling accounts receivable to a third-party company, while accounts receivable financing involves using accounts receivable as collateral for a loan.
Accounts Receivable MCQs
What is the allowance for doubtful accounts?
a) The amount of money a company expects to receive from its accounts receivable
b) The amount of money a company sets aside to cover potential bad debts
c) The amount of money a company owes to its creditors
d) The amount of money a company owes to its employees
Answer: b) The amount of money a company sets aside to cover potential bad debts
Which of the following is an example of a credit policy a company can implement to manage accounts receivable?
a) Requiring cash payment at the time of purchase
b) Offering discounts for early payment
c) Enforcing penalties for late payment
d) All of the above
Answer: d) All of the above
What is the difference between gross method and net method of accounting for sales discounts?
a) Gross method records sales at the discounted price, while net method records sales at the full price
b) Gross method records sales at the full price, while net method records sales at the discounted price
c) Gross method is used when the discount is taken, while net method is used when the discount is not taken
d) None of the above
Answer: b) Gross method records sales at the full price, while net method records sales at the discounted price
How does an increase in accounts receivable affect the current ratio?
a) It increases the current ratio
b) It decreases the current ratio
c) It has no effect on the current ratio
d) It depends on the amount of the increase and the other components of the current ratio
Answer: b) It decreases the current ratio
Accounts Receivable Solved MCQs
What is the write-off method of accounting for bad debts?
a) Writing off bad debts as they become uncollectible
b) Estimating bad debts as a percentage of total credit sales
c) Categorizing accounts receivable based on their age and applying different percentages to each category
d) None of the above
Answer: a) Writing off bad debts as they become uncollectible
What is the aging of accounts receivable?
a) A method of estimating bad debts based on the age of the accounts receivable
b) A method of recording accounts receivable in the general ledger
c) A method of valuing accounts receivable on the balance sheet
d) A method of collecting accounts receivable from customers
Answer: a) A method of estimating bad debts based on the age of the accounts receivable
Which of the following statements is true regarding the collection period ratio?
a) A higher collection period ratio indicates that the company is collecting its accounts receivable quickly
b) A lower collection period ratio indicates that the company is collecting its accounts receivable quickly
c) The collection period ratio measures the average number of days it takes a company to collect its accounts receivable
d) Both b) and c) are true
Answer: d) Both b) and c) are true
Which of the following is an advantage of factoring accounts receivable?
a) Improved cash flow
b) Reduced credit risk
c) Lower interest rates
d) Increased control over the collection process
Answer: a) Improved cash flow
MCQs about Accounts Receivable in Accounting
What is the difference between recourse factoring and non-recourse factoring?
a) Recourse factoring involves the transfer of credit risk to the factor, while non-recourse factoring does not
b) Non-recourse factoring involves the transfer of credit risk to the factor, while recourse factoring does not
c) Recourse factoring involves the factor assuming responsibility for collecting the accounts receivable, while non-recourse factoring does not
d) None of the above
Answer: a) Recourse factoring involves the transfer of credit risk to the factor, while non-recourse factoring does not
Which of the following is not a method of managing accounts receivable?
a) Factoring
b) Aging of accounts receivable
c) Offering discounts for early payment
d) Increasing credit terms for customers
Answer: d) Increasing credit terms for customers
Which of the following statements is true regarding the direct write-off method of accounting for bad debts?
a) It is the most commonly used method of accounting for bad debts
b) It is required by GAAP
c) It is a conservative method of accounting for bad debts
d) It is used to estimate bad debts as a percentage of total credit sales
Answer: c) It is a conservative method of accounting for bad debts
What is the sales-to-receivables ratio?
a) The ratio of sales to accounts payable
b) The ratio of sales to inventory
c) The ratio of sales to accounts receivable
d) The ratio of sales to total assets
Answer: c) The ratio of sales to accounts receivable
Accounts Receivable MCQs
What is the write-off entry when using the allowance method of accounting for bad debts?
a) Debit Bad Debt Expense and credit Accounts Receivable
b) Debit Allowance for Doubtful Accounts and credit Bad Debt Expense
c) Debit Accounts Receivable and credit Allowance for Doubtful Accounts
d) None of the above
Answer: c) Debit Accounts Receivable and credit Allowance for Doubtful Accounts
Which of the following is an example of an unearned revenue?
a) Prepaid rent
b) Accrued salaries payable
c) Deferred revenue
d) Accounts receivable
Answer: c) Deferred revenue
For Accounts Payable MCQs click HERE