Free Financial Management For Project Managers Accounts Payable/Receivable Questions and Answers — Questions and Answers

Question 1: team that reviews a schedule to identify overdue invoices and collects unpaid balances on accounts

sales order
collections team (Correct answer)
credit terms
vendor

Correct answer: collections team

A collections team is specifically responsible for managing and recovering outstanding debts from customers. Their primary function involves reviewing accounts for overdue payments, contacting clients, and implementing strategies to collect unpaid balances. This directly aligns with identifying overdue invoices and collecting unpaid balances on accounts.

Question 2: Payment policies that suppliers impose on their clients

terms of payment (Correct answer)
commission
minimum order quantity
common practice

Correct answer: terms of payment

Terms of payment, also known as credit terms, are the conditions under which a seller will complete a sale to a buyer. These policies specify the due date for payment, any discounts offered for early payment, and penalties for late payment, essentially outlining the financial obligations and expectations between the supplier and client. They are crucial for managing cash flow and expectations.

Question 3: indicates the amount that customers owe to a business as a result of buying products or services.

accounts receivable (Correct answer)
accounts payable
balance sheet
financing activities

Correct answer: accounts receivable

Accounts receivable (AR) represents the money owed to a company by its customers for goods or services that have been delivered or used but not yet paid for. It is essentially credit extended by the business to its customers, recorded as a current asset on the balance sheet. This figure is vital for assessing a company's liquidity and short-term financial health.

Question 4: A company (or individual) that accepts a good or service in exchange for a promise to pay later; sometimes known as "buying on credit"

sale on account
an investment by owner
purchase on account (Correct answer)
receiving report

Correct answer: purchase on account

A "purchase on account" refers to buying goods or services from a supplier on credit, meaning the buyer receives the items immediately but agrees to pay for them at a later date. This transaction creates a liability for the buyer (accounts payable) and an asset for the seller (accounts receivable). It's a common practice in business to facilitate transactions without immediate cash exchange.

Question 5: document that permits a buyer to obtain products or services from a supplier

purchase order (Correct answer)
cash sale
vendor invoice
sales order

Correct answer: purchase order

A purchase order (PO) is a commercial document issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services. It serves as a formal request and, once accepted by the seller, becomes a legally binding contract. The PO is essential for authorizing the buyer to obtain the specified items and for tracking procurement.

Question 6: The statement of financial position is "used by lenders, investors, and creditors to estimate the liquidity of a business; the balances in asset accounts should always equal the sum of balances in the liability and owner's equity accounts"

accounts payable
balance sheet (Correct answer)
accounts receivable
cash flow statement

Correct answer: balance sheet

The balance sheet is a financial statement that provides a snapshot of a company's financial health at a specific point in time. It adheres to the fundamental accounting equation: Assets = Liabilities + Owner's Equity, making it crucial for assessing liquidity and solvency for external stakeholders like lenders and investors. It's often called the statement of financial position for this reason.

Question 7: funds placed aside in anticipation of expenses that will arise at some point in the future

taxable income
withholding
allowances (Correct answer)
deductions

Correct answer: allowances

In financial management, "allowances" can refer to funds set aside or budgeted for specific future expenses or contingencies. This practice helps in planning for anticipated costs, ensuring resources are available when needed and contributing to better financial forecasting and stability. It's a proactive approach to managing future financial obligations.

Question 8: is employed to identify the items on the purchase order that were really received.

receiving report (Correct answer)
purchase order
sales invoice
vendor invoice

Correct answer: receiving report

A receiving report is a document generated upon the arrival of goods, detailing the items received, their quantities, and condition. It is crucial for verifying that the goods delivered match the purchase order, ensuring accuracy in inventory records and facilitating proper payment to suppliers. This report acts as proof of delivery and quality control.

Question 9: document that attests to the customer's purchase of goods and services

sales order (Correct answer)
purchase order
sales return
sales invoice

Correct answer: sales order

A sales order is an internal document generated by a seller upon receiving a customer's purchase request. It details the goods or services ordered, quantities, prices, and delivery information, serving as a record of the customer's commitment to purchase and guiding the fulfillment process. It's a critical step in the order-to-cash cycle.

Question 10: a way to keep track of all customer payments and invoices

sales file
customer file (Correct answer)
customer loyalty
sales register

Correct answer: customer file

A customer file, often part of a customer relationship management (CRM) system or accounting software, is a comprehensive record for each client. It centralizes information such as contact details, purchase history, outstanding invoices, and payment records. This enables efficient tracking and management of customer accounts, improving customer service and financial oversight.

Question 11: Accounting records that show how much a business owes creditors for goods bought on credit

balance sheet
customer file
accounts payable (Correct answer)
accounts receivable

Correct answer: accounts payable

Accounts payable (AP) represents the money a company owes to its suppliers and vendors for goods or services purchased on credit. These are short-term liabilities that appear on the balance sheet, indicating the company's obligations to pay its creditors in the near future. Managing accounts payable effectively is crucial for maintaining good supplier relationships and cash flow.

Question 12: Asset accounts that display regular credit balances rather than debit balances

contra asset (Correct answer)
control account
contra revenue
cash sale

Correct answer: contra asset

Contra asset accounts are used to reduce the book value of a related asset account. Unlike typical asset accounts which increase with debits, contra asset accounts increase with credits, resulting in a credit balance. A common example is Accumulated Depreciation, which reduces the value of fixed assets on the balance sheet.

Question 13: when a client pays for an item at the moment of receipt or a service at the time of provision

sales tax
sales order
cash sale (Correct answer)
sale on account

Correct answer: cash sale

A cash sale occurs when a customer pays for goods or services immediately at the point of transaction. This means the payment is received at the moment the item is provided or the service is rendered. It contrasts with a 'sale on account,' where payment is deferred and recorded as accounts receivable.

Question 14: document given to businesses when they purchase products on credit

sales invoice
vendor file
vendor statement
vendor invoice (Correct answer)

Correct answer: vendor invoice

A vendor invoice is a bill issued by a supplier (vendor) to a buyer for goods or services purchased. When a business buys products on credit, this document details the items, quantities, prices, and payment terms, serving as a formal request for payment. It is crucial for tracking accounts payable and managing supplier relationships.

Question 15: Cash flow from products moved and services rendered throughout business operations

sales return
accounts receivable
operating activities (Correct answer)
investing activities

Correct answer: operating activities

Operating activities represent the primary revenue-generating activities of a business. Cash flow from operating activities includes money generated from selling products or services, as well as cash used for expenses directly related to these core operations. It reflects the cash a company generates from its normal business functions.

Question 16: products that a customer has returned to the producer or seller because they were broken or defective

sales order
sales allowance
purchases return
sales return (Correct answer)

Correct answer: sales return

A sales return occurs when a customer sends previously purchased goods back to the seller. This often happens because the products were broken, defective, or did not meet the customer's expectations. Sales returns reduce a company's net sales revenue and may result in a refund or credit to the customer.

Free Financial Management For Project Managers Accounts Payable/Receivable Questions and Answers

team that reviews a schedule to identify overdue invoices and collects unpaid balances on accounts