Accounts Payable & Receivable Management Flashcards
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Read the first 7 Accounts Payable & Receivable Management flashcards as text
What is the normal balance of an Accounts Receivable account?
Answer: Debit
Accounts Receivable is an asset account, and asset accounts carry a normal debit balance.
Which document typically initiates the accounts payable process when a company purchases goods?
Answer: Purchase order
A purchase order is issued by the buyer to the vendor to formally request goods or services, initiating the AP cycle.
Under the accrual basis of accounting, when is accounts receivable recorded?
Answer: When goods or services are delivered
Accrual accounting requires revenue—and the related receivable—to be recognized when the earnings process is complete (delivery of goods or services).
The Allowance for Doubtful Accounts is classified as which type of account?
Answer: Contra-asset
Allowance for Doubtful Accounts is a contra-asset account that reduces the gross Accounts Receivable balance to its net realizable value.
Under the direct write-off method, bad debt expense is recorded when:
Answer: A specific account is determined to be uncollectible
The direct write-off method recognizes bad debt expense only when a specific receivable is identified as uncollectible, which can violate the matching principle.
A vendor issues a credit memo to a buyer. What effect does this have on the buyer's accounts payable balance?
Answer: Decreases it
A credit memo from the vendor reduces the amount owed, thereby decreasing the buyer's accounts payable balance.
Net realizable value of accounts receivable is calculated as:
Answer: Gross AR minus Allowance for Doubtful Accounts
Net realizable value equals gross accounts receivable less the allowance for doubtful accounts, representing the amount the company expects to collect.