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Quizzes > Quizzes for Business > Finance

Accounts Receivable Knowledge Assessment Quiz

Assess Your Accuracy in Receivables and Credit Control Management

Difficulty: Moderate
Questions: 20
Learning OutcomesStudy Material
Colorful paper art design for an Accounts Receivable Knowledge Assessment quiz

This Accounts Receivable Knowledge Quiz helps you check your skills in invoice management, credit control, payment terms, and reconciliation. Work through 15 real-world multiple-choice questions to practice cash application and aging, and spot gaps before an exam or your next close. Also see tax-advantaged accounts and compliance if you're revising those areas.

What information does an accounts receivable aging schedule provide?
It lists outstanding customer invoices by age categories.
It forecasts future sales revenue.
It details monthly cash receipts.
It records company payables.
An accounts receivable aging schedule categorizes outstanding invoices by the length of time they've been unpaid. This report helps identify which accounts are current and which are overdue for follow-up or provision.
Which aging bucket typically indicates an invoice is overdue?
Current (0-30 days)
Prepaid
31-60 days
0-30 days
Invoices in the 31 - 60 days bucket are beyond the standard 30-day term and thus considered overdue. This classification prompts collection efforts and potential credit policy actions.
What is the first recommended action when an invoice becomes past due?
Record an allowance.
Write off the receivable.
Contact the customer to follow up.
Apply a credit memo.
The recommended first step when a receivable goes past due is to contact the customer and inquire about payment. Early communication can often resolve misunderstandings and expedite collection.
In credit risk management, what does the term 'default' refer to?
An error in an invoice.
A system setting.
A discount offered.
A customer failing to meet payment obligations.
In credit risk management, default occurs when a customer fails to pay amounts due under agreed terms. Recognizing default risk is essential for setting credit limits and provisions.
What does payment term 'Net 30' mean?
Payment in 30 installments.
Payment is due at month end.
Payment is due 30 days after invoice date.
30% discount if paid within term.
Net 30 means the total invoice amount is due 30 days after the invoice date. It's a common payment term to define the period within which customers must pay.
Which financial ratio is most useful for evaluating a customer's short-term credit risk?
Gross margin ratio
Return on assets
Current ratio
Debt-to-equity ratio
The current ratio measures a customer's ability to cover short”term liabilities with short”term assets. A higher ratio indicates better liquidity and lower short”term credit risk.
When a payment record shows a lower amount than invoiced, what is the first step in resolving this discrepancy?
Review the remittance advice or payment details
Apply the full invoice amount
Issue a new invoice for the shortfall
Automatically write off the difference
Reviewing remittance advice helps clarify why there's a payment shortfall by providing details on how the customer applied funds. This step prevents premature write-offs and ensures accurate records.
What term describes a payment that is less than the invoiced amount?
Overpayment
Early payment
Short payment
Netting
A short payment occurs when a customer pays less than the billed amount. Identifying short payments is important for follow”up and reconciliation.
Which process involves matching incoming payments to specific customer invoices?
Cash application
Credit scoring
Aging analysis
Billing
Cash application is the process of matching incoming cash receipts to specific customer invoices. Accurate cash application ensures the accounts receivable ledger stays current and reconciled.
What is 'unapplied cash' in accounts receivable?
Cash received and reconciled to invoices
Prepaid customer deposits
Cash not yet allocated to specific invoices
Overpayments returned to customers
Unapplied cash refers to funds received from customers that haven't yet been allocated to specific invoices. It often requires investigation to match payments correctly or resolve discrepancies.
Under a credit control policy, what is a credit limit?
Standard invoice discount rate
Minimum payment amount per invoice
Maximum allowable credit extended to a customer
Interest rate on overdue amounts
A credit limit sets the maximum amount of credit a company is willing to extend to a customer. It's a key control to manage exposure and minimize default risk.
What is the primary objective of credit control?
Increase vendor payment terms
Maximize the number of new customers
Minimize credit risk and days sales outstanding
Reduce purchase order processing time
Credit control aims to ensure that sales on credit do not lead to excessive bad debts. By managing credit risk and reducing days sales outstanding, cash flow is optimized.
Which report is used to reconcile the accounts receivable subsidiary ledger to the general ledger?
Inventory valuation report
Sales forecast report
AR reconciliation report
Bank reconciliation report
An AR reconciliation report compares totals from the accounts receivable subsidiary ledger to the general ledger balance. This process identifies discrepancies and ensures accurate financial statements.
During an AR reconciliation, which issue would most likely cause a reconciliation difference?
Employee expense reimbursements
Duplicate customer orders
Unrecorded customer payments
Vendor invoice errors
Unrecorded customer payments will cause the general ledger receivables balance to exceed the subsidiary ledger. Recognizing these omissions is critical for complete and accurate reconciliations.
A higher proportion of receivables in the over 90 days bucket typically signals what?
Strong customer loyalty
Improved cash flow
Increased risk of non-payment
Faster collection cycles
A high proportion of receivables over 90 days indicates accounts at greatest risk of non”payment. This metric signals potential collection issues and the need for allowance adjustments.
A new customer with limited credit history requests extended payment terms. What is the most appropriate action under a typical credit control policy?
Increase the invoice amount by a penalty fee
Deny any credit and demand prepayment
Require a personal guarantee or credit insurance
Automatically grant extended terms to encourage sales
When a customer lacks sufficient credit history, requiring a guarantee or credit insurance mitigates risk. This approach aligns with credit control policies that balance sales growth with risk management.
During reconciliation, you discover a $1,200 payment related to an invoice of $1,500. How should this be recorded?
Apply $1,200 to the invoice and leave a $300 outstanding balance
Write off the $300 difference immediately
Post the $1,200 to an expense account
Apply the full $1,500 to the invoice and adjust later
Applying $1,200 to the related invoice leaves the remaining $300 as an outstanding balance, reflecting the actual customer obligation. This method maintains clarity in the receivable ledger and prompts follow-up.
Analysis shows customers are taking full early payment discounts excessively. Which strategy could optimize these terms for better cash flow?
Shorten the discount period or reduce the discount percentage
Extend payment terms without discount
Eliminate discounts entirely
Charge a penalty for early payment
Reducing the discount percentage or shortening the discount window preserves the incentive while improving cash flow. Adjusting terms based on payment behavior aligns incentives with company objectives.
An AR aging schedule shows total receivables of $100,000 with $5,000 over 90 days. If the allowance for doubtful accounts policy is 15% for amounts over 90 days, what is the required allowance?
$5,000
$15,000
$750
$7,500
With $5,000 over 90 days and a 15% allowance rate, the allowance calculates to $750. This reserve anticipates potential write-offs and reflects the policy”based risk estimation.
A customer disputes an invoice due to a pricing error. After review, the corrected price is 10% higher than originally invoiced, and the customer has paid only the original invoiced amount. What is the appropriate accounting entry?
Record a debit memo for the undercharge and apply the payment
Write off the 10% difference as a bad debt
Reverse the entire payment and wait for full settlement
Issue a credit memo for the 10% and leave the invoice open
A debit memo corrects the underbilling and adjusts the receivable balance before applying the payment. This entry ensures the billing error is documented and the received payment is recorded accurately.
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Learning Outcomes

  1. Analyse aging schedules to pinpoint overdue accounts.
  2. Evaluate credit risk factors to optimise payment terms.
  3. Identify discrepancies in invoices and payment records.
  4. Apply cash application techniques for accurate posting.
  5. Demonstrate understanding of credit control policies.
  6. Master reconciliation processes for accounts receivable ledgers.

Cheat Sheet

  1. Understand the purpose of an accounts receivable aging report - An aging report sorts your outstanding invoices into buckets based on how long they've been due, so you instantly know which customers are falling behind. It's like a financial health check that shows where to focus your collection efforts and prevent cash flow hiccups.
  2. Learn to calculate Days Sales Outstanding (DSO) - DSO tells you the average number of days it takes for customers to pay you after a sale, giving you a clear measure of your billing and collection efficiency. Spotting trends in DSO helps you tighten credit policies or encourage faster payments with earlyā€¯payment incentives.
  3. Recognize key credit risk factors - Before extending credit, evaluate each customer's payment history, financial stability, and even their industry's ups and downs. A quick credit check helps you set smarter payment terms, avoid nasty surprises, and keep your bad debts to a minimum.
  4. Identify common invoice discrepancies - Watch out for duplicate invoices, wrong amounts, or missing PO numbers - these little errors can stall payments and frustrate both sides. Spotting and fixing mistakes early keeps cash flowing and relationships happy.
  5. Master cash application techniques - Matching payments to the right invoices might sound tedious, but getting it right ensures your books are spotless and your reporting is rockā€¯solid. Automating where you can saves time and slashes reconciliation headaches.
  6. Understand credit control policies - Clear credit terms and formalized approval processes shield you from slowā€¯payers and bad debts. Having written policies everyone follows keeps your team on the same page and your receivables under control.
  7. Learn the reconciliation process for accounts receivable - Regularly reconcile your internal records with bank statements or customer ledgers to catch discrepancies immediately. Timely reconciliations prevent surprises at monthā€¯end and ensure your financial reports are trustworthy.
  8. Utilize aging schedules to monitor overdue accounts - Aging schedules spotlight exactly which invoices are 30, 60, or 90 days past due, so you can chase down delinquencies with laser focus. Prioritizing your collection calls boosts recovery rates and keeps your cashflow humming.
  9. Implement strategies for efficient accounts receivable management - From automated invoicing to polite - but persistent - follow-ups, a solid AR playbook speeds up payments and reduces write-offs. Offering small discounts for early payment can be a gameā€¯changer for cash flow.
  10. Stay informed about best practices in accounts receivable - The world of finance tech and compliance is always evolving - keep learning about new tools, regulatory updates, and industry benchmarks. Continuous improvement ensures your processes stay sharp and competitive.
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