Financial Management for Project Managers Accounts Payable/Receivable 2 — Questions and Answers
Question 1: A vendor invoice arrives with a 2/10 net 30 payment term. What does this mean for the project manager?
- Pay within 30 days to get a 2% discount
- Get a 2% discount if paid within 10 days, otherwise full amount due in 30 days (Correct answer)
- Pay 2% interest if not paid within 10 days
- Pay within 2 days or face a 10% penalty
Correct answer: Get a 2% discount if paid within 10 days, otherwise full amount due in 30 days
2/10 net 30 means a 2% early payment discount applies if the invoice is paid within 10 days; the full amount is due within 30 days.
Question 2: Which aging bucket in an accounts receivable aging report typically signals the highest collection risk?
- 0-30 days
- 31-60 days
- 61-90 days
- 91+ days (Correct answer)
Correct answer: 91+ days
Receivables in the 91+ days bucket are most at risk for becoming bad debts because they are significantly overdue.
Question 3: A project team receives goods worth $50,000 but the vendor invoice has not yet arrived. How should this be recorded?
- No entry until the invoice arrives
- Debit expense, credit accrued liabilities (Correct answer)
- Debit prepaid expense, credit cash
- Debit accounts payable, credit revenue
Correct answer: Debit expense, credit accrued liabilities
An accrual entry is made to recognize the expense and corresponding liability even without the invoice, following the matching principle.
Question 4: What is the primary purpose of a purchase order (PO) in the accounts payable process?
- To record payment to the vendor
- To authorize a purchase and document the agreed terms before goods are received (Correct answer)
- To reconcile the vendor's statement
- To request a refund from a vendor
Correct answer: To authorize a purchase and document the agreed terms before goods are received
A PO formally authorizes a purchase and establishes agreed pricing and terms before the transaction occurs.
Question 5: A project manager notices the accounts receivable turnover ratio has declined over two quarters. What does this most likely indicate?
- Customers are paying faster
- The project is generating more revenue
- Customers are taking longer to pay, indicating collection issues (Correct answer)
- The company has reduced its credit sales
Correct answer: Customers are taking longer to pay, indicating collection issues
A declining AR turnover ratio means receivables are being collected more slowly, which can strain project cash flow.
Question 6: What document is used in a three-way match process to verify an accounts payable invoice?
- Purchase order, receiving report, and vendor invoice (Correct answer)
- Budget report, vendor invoice, and bank statement
- Contract, change order, and payment request
- Timesheet, expense report, and vendor invoice
Correct answer: Purchase order, receiving report, and vendor invoice
A three-way match compares the purchase order, receiving report, and vendor invoice to ensure all three align before payment is approved.
Question 7: Which metric helps a project manager understand how efficiently the project is paying its vendors?
- Accounts receivable turnover
- Days payable outstanding (DPO) (Correct answer)
- Net profit margin
- Current ratio
Correct answer: Days payable outstanding (DPO)
Days payable outstanding measures the average number of days a company takes to pay its vendor invoices.
Financial Management for Project Managers Accounts Payable/Receivable 2
A vendor invoice arrives with a 2/10 net 30 payment term.
What does this mean for the project manager?