Accounts Receivable and Credit Management Quiz

DSO measures how efficiently a company collects payments from its customers.

Credit management aims to minimize losses from customers who fail to pay.

A credit application is used to evaluate a customer's creditworthiness before extending credit.

Offering credit ties up funds in accounts receivable, affecting liquidity.

Accounts Receivable Turnover ratio = Net credit sales / Average accounts receivable, indicating how many times receivables are collected in a period.

Inventory valuation is not a factor influencing credit policy decisions.

An aging schedule is a report displaying the historical aging of accounts receivable.

Implementing stricter credit policies is a strategy to reduce accounts receivable collection time.

Aging of Accounts Receivable report displays the historical payment history of customers.

A credit limit establishes the maximum amount of credit that can be extended to a customer.

Credit analysis evaluates the creditworthiness of customers before granting credit.

A shorter accounts receivable turnover ratio suggests ineffective management of receivables, potentially impacting cash flow.